Keep history in mind when reviewing latest Chinese statistics, says East Capital’s Kristina Sandklef

Kristina Sandklef, macro economist Asia at East Capital, says that investors reviewing the latest Chinese government statistics should keep in mind the balance between improved methodologies against the country’s history of propaganda.

Today sees the start of a new round of monthly statistics from China, starting with inflation, fixed asset investments and industrial production. As usual, questions about the reliability of Chinese statistics will come up. Last month, when the GDP growth for the second quarter ended at 7.6% rather than between 7-7.5% as expected, discussion around the reliability of Chinese statistics picked up. China bears questioned the figures, as GDP growth was higher than the growth of energy production, which they claim was the ultimate proof of the Chinese GDP figure being fabricated.

First of all, like Soviet statistics, Chinese statistics have a heritage being part of Communist Party propaganda. This was especially evident in the late 1950s and early 1960s during the Great Leap Forward. False statistics were reported to please Chairman Mao, which eventually led to mass starvation and death as central authorities believed agricultural production was many times higher than was the reality. Even in the 1990s, Chinese statistics were known for being unreliable, with a margin of error said to be somewhere between 10-15%.

Secondly, collecting statistics is hard in any country, but especially in a huge country like China with such a vast population. Add to this a culture of deceit amongst the Chinese towards officials, and you have a challenge for data collection. For example, it is hard to assess incomes in China as significant income is derived from informal sectors and many do not wish to state their income to data collectors because they are evading taxes or have made some of their money illegally.

Another factor that influences statistics reporting in China is the fact that local bureaucrats get promoted depending on their ability to generate economic growth in their localities. Thus, GDP growth tends to be overstated in provincial statistics. Sometimes other policies can influence reporting, for example, China is currently on an energy saving programme, and it could thus be beneficial to underreport power production to please central government.

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