Just How Badly Flawed is Chinese Economic Data?

cpwill · Aug 14, 2013

Adjustment just for inflation results in a loss of $1 Trillion.

And that's just due to properly adjusting for inflation.

...Baseline Chinese economic data is unreliable. Taking published National Bureau of Statistics China data on the components of consumer price inflation, I attempt to reconcile the official data to third party data. Three problems are apparent in official NBSC data on inflation. First, the base data on housing price inflation is manipulated. According to the NBSC, urban private housing occupants enjoyed a total price increase of only 6% between 2000 and 2011. Second, while renters faced cumulative price increases in excess of 50% during the same period, the NBSC classifies most Chinese households has private housing occupants making them subject to the significantly lower inflation rate. Third, despite beginning in the year 2000 with nearly two-thirds of Chinese households in rural areas, the NSBC applies a straight 80/20 urban/rural private housing weighting throughout our time sample. This further skews the accuracy of the final data. To correct for these manipulative practices, I use third party and related NBSC data to better estimate the change in consumer prices in China between 2000 and 2011. I find that using conservative assumptions about price increases the annual CPI in China by approximately 1%. This reduces real Chinese GDP by 8-12% or more than $1 trillion in PPP terms....

This is just another confirmation of many of the China-based economists who have been saying this sort of thing for years.

...Within China, however, most economists that I speak to were far more pessimistic. I remember meetings as far back as 2008, for example involving senior US or European government officials looking to be debriefed on the Chinese economy, in which the foreign (and some Chinese) analysts present spoke jauntily about the great success of China’s growth policies and the brilliant future ahead, while many of the Chinese economists present were much more cautious and even gloomy as they discussed the sheer intractability of China’s economic distortions. In those days, I would argue, skepticism was disproportionately to be found among Chinese economists, and not foreign economists....

Remember when Catterpillar woke up one morning to discover overstated figures had resulted in them realizing a $580 million loss? That kind of thing is about to happen all over companies who are majorly invested in China.

WCH · Aug 14, 2013

As much as China and others would like to believe they are above the fray, globalization has us tightly linked.

If a tree falls in the woods, everyone hears it.

sawyerloggingon · Aug 14, 2013

China is on the verge of a bubble burst that will rock the world. When it happens fuel prices will drop like a rock but the bad part is China will become very dangerous as it flails around like a wounded bear. It will turn to its military to stay relevant in the world and if I was SK or Japan I would be very concerned.

cpwill · Aug 14, 2013

sawyerloggingon said:
China is on the verge of a bubble burst that will rock the world. When it happens fuel prices will drop like a rock but the bad part is China will become very dangerous as it flails around like a wounded bear. It will turn to its military to stay relevant in the world and if I was SK or Japan I would be very concerned.

Japan is. They recently launched their largest vessel since WWII, capable of acting as a VTOL aircraft carrier. SKorea still has Psycho McNuggets to worry about, and the PRC has been playing nicely with them, lately. The Philippines and Vietnam are also fairly concerned, and the three of them will probably end up in some kind of loose general agreement.

Dittohead not! · Aug 14, 2013

sawyerloggingon said:
China is on the verge of a bubble burst that will rock the world. When it happens fuel prices will drop like a rock but the bad part is China will become very dangerous as it flails around like a wounded bear. It will turn to its military to stay relevant in the world and if I was SK or Japan I would be very concerned.

You don't think such a bursting bubble would affect China's trading partners, like, say for example, the US?

JP Hochbaum · Aug 14, 2013

China doesn't even measure their public debt levels. They do that because they know that it is a useless measurement. This terrifies deficit and debt hawks.

They also don't measure inflation the way inflation hawks measure it, this scares gold hoarders and inflation hawks.

China isn't scared though, they know they could prevent bubbles at any time.

sawyerloggingon · Aug 14, 2013

Dittohead not! said:
You don't think such a bursting bubble would affect China's trading partners, like, say for example, the US?

I think it would definitely effect us I'm just not sure how. I also think if they made a move on Japan or S Korea we would be sucked in. If China collapses as I think it will the world will change.

Dittohead not! · Aug 14, 2013

sawyerloggingon said:
I think it would definitely effect us I'm just not sure how. I also think if they made a move on Japan or S Korea we would be sucked in. If China collapses as I think it will the world will change.

If China were to collapse, then the world would change for sure, and not for the better. When a fifth of the population of the planet lives in a suddenly failed state, the rest of us are going to feel the economic tsunami.

Manc Skipper · Aug 14, 2013

The Romney poll analysis team should get right on it....

cpwill · Aug 14, 2013

JP Hochbaum said:
China doesn't even measure their public debt levels. They do that because they know that it is a useless measurement.

China Orders Government Debt Audit

...China will start a nationwide audit of government debt this week as the new Communist Party leadership investigates the threats to growth and the financial system from a record credit boom....

The first audit of local-government debt found liabilities of 10.7 trillion yuan ($1.75 trillion) at the end of 2010, the National Audit Office said in June 2011.

The audit’s urgency may be because “confidence in the Chinese economy from all sides has weakened recently,” Ding said.

Ding estimated China has at least 12 trillion yuan of local-government debt. The review may pave the way for future fiscal reforms, including changes to rules on local governments’ roles and responsibilities, Ding said....

You were saying?

China isn't scared though, they know they could prevent bubbles at any time.

China knows they are sitting on a bubble, which is why they have been trying to tamp down on the real estate sector (and failing) for a couple of years now.

cpwill · Aug 14, 2013

Dittohead not! said:
You don't think such a bursting bubble would affect China's trading partners, like, say for example, the US?

:shrug: it can't not. We've already seen (to list one example) spikes in Chinese trying to get their money out of the country by purchasing U.S. property.

JP Hochbaum · Aug 14, 2013

cpwill said:
China Orders Government Debt Audit

You were saying?

China knows they are sitting on a bubble, which is why they have been trying to tamp down on the real estate sector (and failing) for a couple of years now.

You posted about local debt, I was referring to their federal government debt.

cpwill · Aug 14, 2013

JP Hochbaum said:
You posted about local debt, I was referring to their federal government debt.

The phrase you used was "public".

Just How Badly Flawed is Chinese Economic Data?

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Just How Badly Flawed is Chinese Economic Data?

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