Why Are We Still Paying Attention To Chinese Numbers?
A few years ago, economist Nouriel Roubini was explaining to a reporter why Chinese economic data couldn't be trusted. He noted that it takes the US weeks and sometimes months to pull together and process the information necessary to produce a complex stat like GDP, and wondered how China, with its far bigger, less developed (and therefore harder to measure) population was able to do it in considerably less time. He concluded that they're just making up their numbers.
Since then, a growing number of economists and analysts have come around to this point of view. They now largely dismiss China's official reports, preferring instead to trust easily-verified things like shipping traffic and electricity consumption.
Yet China's official releases still get treated by the markets as if they're based on actual measurement rather than political calculation. The Q4 GDP report, published just minutes ago, is a case in point:
China's economic growth rate slowed to a 25-year low of 6.9 percent in 2015, reigniting worries about the health of the world's second-largest economy.
China's economy grew 6.8 percent in the fourth quarter of 2015 from the same period last year, official data showed Tuesday.
Economic growth for the quarter was expected to come in at 6.8 percent on-year, down from the third quarter's 6.9 percent, according to a Reuters poll, which also found economists expected full-year growth at 6.9 percent, down from 2014's 7.3 percent.
"This is a good number," Jahangir Aziz, head of emerging Asia economic research at JPMorgan, told CNBC's Street Signs. "We've known for the last three years that the Chinese authorities are slowing down the economy. This economy is going to slow down," he said.
"In August, last year there was almost a fear that the economy was in freefall. There was no policy support. I think all that has changed," Aziz said.
There are a slew of concerns about the Chinese economy as it transitions from a manufacturing base to services: The country is hooked on debt, the shadow banking sector has imploded, the property market sometimes shows signs of a bubble and major industries are slowing.
Those concerns have driven, at least in part, a sharp drop in China's stock markets recently. The Shanghai Composite has entered "bear within a bear" territory, falling more than 20 percent from its December high, as well as trading down more than 40 percent from its 52-week high set in June of last year.
Now, a couple of things. First, if they more-or-less fabricate their numbers, and this is what they're willing to admit, then actual growth must be considerably lower. Second, as even the above article concedes, the stock market is tanking and the industrial side of the economy is shrinking. Services -- whatever they are -- must be rocking to produce a growing economy under those circumstances.
Combine these generally-accepted-as-fake numbers with the Chinese government's recent display of almost random coercion (prosecuting short sellers, disappearing bookstore owners, imposing capital controls, intervening in equity markets) and a picture emerges of a country that's not ready for prime time. China is big, yes, but it lacks the rule of law and stable institutions of a world power. And it seems not to understand markets, which should terrify everyone who hopes to avoid a global melt-down.