Analysis

Trusting China’s economic data more like a giant leap of faith

Do Beijing’s numbers really stand up as China’s trading partners face the deepest recession since the Great Depression?

Premier Li Keqiang was gushing in praise last week when discussing China’s economy as if it was the Ninth Wonder of the World.

Speaking at a symposium of local government officials, he talked about the strength of the ruling Communist Party and the push for “positive economic growth” this year.  

“It is [remarkable] that the Chinese economy has maintained basic fundamentals, and presented steady resumption and growing momentum,” he said.

Just days later, the National Bureau of Statistics revealed that gross domestic product for the third quarter jumped by 4.9% compared to the same period in 2019.

Overall, GDP edged higher at 0.7% during the first nine months of 2020 with Fixed Asset Investment (FAI) growth accelerating by 0.8% to 4.37 trillion yuan (US$654 billion) in the same period.

Deepest recession

Retail sales also expanded 3.3% in September and industrial production rose by 6.9%.

At first glance, the numbers appeared remarkable when you consider that most of China’s trading partners are in the deepest recession since the Great Depression in the 1930s as they grapple with the Covid-19 crisis.

“China’s economy remains on the recovery path, driven by a rebound in exports. Consumer spending is also headed in the right direction, but we cannot say it has completely shaken off the drag caused by the coronavirus,” Yoshikiyo Shimamine, the chief economist at Dai-ichi Life Research Institute in Tokyo, said.

Still, Beijing is notorious for juicing up the numbers. Institutions tend to have strong links to the Party while independent verification of economic data is non-existent.

Back in February, Leland Miller, the chief executive of the influential advisory company China Beige Book, questioned the veracity of figures rolled out by the National Bureau of Statistics. 

“The Chinese published GDP numbers are absolute garbage. It’s certainly the consensus that these numbers are unreliable,” he said.

Again, that point was underlined by the research group after Monday’s latest release. It also cautioned against slavishly following what could be perceived as dodgy data.

One major anomaly was the FAI figures, showing a 0.8% increase to 4.37 trillion yuan. Last year, that number came in at 4.6 trillion yuan in the first nine months before the National Bureau of Statistics revised it.

“We got the 0.8% growth based on the revised data and a fully comparable base,” a statistics bureau spokeswoman said as reported by the South China Morning Post.

But that smacked of damage control. As the China Beige Book explained on Twitter:

“Economists laser-focused on #China’s 4.9% headline GDP figure are missing the forest for the trees, according to @ChinaBeigeBook, in particular, a major (hidden) revision to this weekend’s FAI data: “According to Derek Scissors, chief economist of #ChinaBeigeBook, if the absolute value of FAI is correct for the first 3 quarters then both investment & retail sales shrank noticeably in the 3Q year-on-year. The GDP change would be close to a fall of 5%, not growing 5%.”

Nick Marro, an analyst on global trade at the Economist Intelligence Unit, was just as bemused.

“The Chinese statistical agency is opaque about their methodology, and unless we get more details about their adjustments, we’ll never know the full story. But there does seem to be evidence of a targeted adjustment to help lift that headline figure,” he said as reported by The Guardian newspaper in London.

The problem is that while the Communist Party might claim it has a “Mandate from Heaven,” it does not have a mandate from the people.

To make the regime legitimate, it must underline its economic expertise. The threat of unemployment, which again hovered around the 5.4% mark in September, is so sensitive that detailed jobless numbers are as rare as talking pandas.

More than 290 million migrant workers are not even officially included in urban unemployment data. Yet they are the backbone of the industry, the driving force of the “Chinese miracle.”

E-commerce sector

In the e-commerce sector, they make up the bulk of the poorly-paid delivery drivers even though they have minimal social security rights in the cities they work in. 

“Many countries struggle with classifying workers not truly employed right now, yet not technically fired. Beijing’s variation on the theme is to report, as always, moderate and stable urban unemployment with [a] vague reference to migrant joblessness,” the China Beige Book reported in its Second Quarter 2020 study.

Premier Li skirted around the subject during his video-link address unlike his blunt message at the National People’s Congress. In May, he stressed that “every effort must be made to prevent massive lay-offs.” Indeed, that was the mantra.

Yet by simply mentioning the dreaded U-word last week, he illustrated that the problem still exists.   

“The country must implement security policies on unemployment and minimum living security allowance, and guarantee basic livelihoods for those who get into difficulties due to the epidemic,” he said.

Sometimes the word is mightier than the data especially in China.

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