The New Chinese GDP Numbers

Despite the relief at China reporting GDP growth of 7.5%, there is growing skepticism about the veracity of the data.  Even the Financial Times is questioning Chinese GDP addition noting that of the 7.5% growth noting that an astounding 5.9% of this came from investment (think more empty apartment blocks and factories running at 50% capacity).  Bob Pisani at CNBC notes that the Chinese GDP seems just a little too good to be true.  Just in case you don’t know my thoughts on the matter let me put it as succinctly as possible: Chinese economic data is bogus.  Manufactured.  As real as a 100rmb Louis Vuitton purse.  As reliable Chinese milk powder.  A complete fake.  Have I made myself clear?

Let me give you two obvious examples from recent statistical releases.  China declared an official GDP growth rate of 7.8% for 2012.  Interestingly however, only two provinces out of 30 comprising 3.2% of Chinese population reported GDP growth rates less than official national number of less than 7.8%.  If GDP was reported based upon an unweighted average or a population weighted average of provincial GDP, 2012 Chinese GDP would be 11.1% or 10.8% respectively.

To put the size of the difference between reported provincial and national GDP in some perspective, it totals nearly $1 trillion USD or 10% of Chinese GDP.  Do not however, make the mistake of believing that the 10.8% number is any more real than the 7.8% number as they both come from the Party’s imagination.  The Chinese National Bureau of Statistics (CNBS) conjuring the data couldn’t make its own numbers add.

Disturbingly and surprisingly, most people don’t realize or for some reason even care they are using such obviously worthless data.  Let’s consider the issue of prices.  The Chinese CPI data is just as fabricated as the GDP data.  Let’s take one component that is easier to track over time: the cost of housing.

Let’s look at the reported price changes in private housing according to the CNBS.  According to official Chinese data, the consumer price of private housing rose a cumulative 8.1% between 2000 and 2011.  That is not 8.1% annually.  That is total.  Putting this in real terms, according to the Chinese government, the real consumer price of private housing fell 17%, if we use using official inflation for what it is worth.

Before I present actual market data, as anyone who knows anything about China knows this number is non-sensical.  From my own anecdotal survey of Chinese friends, colleagues, and students who know official Chinese data is inaccurate they generally “estimate low” and guess between 50-100%.

A 2010 National Bureau of Economic Research Paper published in cooperation with the Institute of Real Estate Studies at Tsinghua University in Beijing found that between the first quarter of 2000 and the first quarter of 2010, a real estate price index of constant quality apartments in 35 major cities nearly tripled.  Similar private housing price indexes in China reflect this general trend with varying numbers though all producing large magnitude increases.

While it should be noted that the private housing CPI component will not be perfectly correlated with a real estate price index, they are by no means neutral or negative.  Real estate market price index increase of nearly 300% vs. a Chinese government CPI private housing component nominal increase of 8% simply cannot be reconciled.

Probably more important for investors than the errors or the size of the error is the systematic bias of the errors.  Taking the two examples presented here, provincial GDP is systematically biased upwards while the CPI errors are systematically biased downwards.  This is absolutely no accident.  Provincial Party leaders advance by inflating GDP numbers.  However, at the national level, China has an interest in moderating its official GDP while they stay in power by keeping inflation low.  It is important to remember what the systematic bias of Communist Party officials is for each economic or financial statistic.

I should emphasize that I am not claiming that China has not grown substantially  for instance, but I am stating unequivocally that Chinese data should be considered a propaganda tool of the Chinese Communist Party.  The reality of GDP and prices is vastly different from the official data.  Statistical propaganda is pervasive and extends to all manner of Chinese data.

Here is hoping that more people outside of China realize that the statistics bureau is just another propaganda tool of the Communist Party.

Memo to Xi Jinping: Tell your statisticians to at least try to make it a little harder to point out the obvious fraud in Chinese data.  This is just embarrassing for you.

6 thoughts on “The New Chinese GDP Numbers

  1. Mr Li Keqiang complained in a US diplomatic cable released on WikiLeaks that Chinese GDP statistics are “man-made”, confiding to a US diplomat that he tracked electricity use, rail cargo, and bank loans to gauge growth. For a while, analysts use electricity data as a proxy for GDP but the commissars kept a step ahead by ordering power utilities to fiddle the figures.

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    • I wouldn’t necessarily say better only that there are a lot of ways to get a much fuller picture of what is going on. I have seen numerous attempts to match trade data with the most recent variation being the “carry trade” by way of Hong Kong which caused enormous discrepancies. My post here is just one method. I think the one I like best is the electricity usage which is nearly flat. I do like the trade data because that is another one that is very hard to fudge.

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