EDITOR: | January 27th, 2016 | 5 Comments

China’s statistics: Growing doubts cloud the true picture

| January 27, 2016 | 5 Comments
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China_PuzzleBack in the 1960s analysts and journalists based in Hong Kong tried to keep on top of what was going on in China, then a suspicious Communist power secretive and closed to Western snoopers. Newspapers from the mainland were scoured for clues by the “China watchers” in the British colony, and each morning a reporter from the South China Morning Post met the daily train from the border arriving at the old Kowloon station just by the Star Ferry wharf, interviewing as many passengers as possible about what they had seen and heard behind what was then called the Bamboo Curtain. Any scrap of information was prized.

I can tell you because I was a reporter on that newspaper in the mid-60s. I didn’t do the Kowloon Station watch; you had to be able to speak fluent Cantonese for that job, for obvious reasons. But curiosity about events across the border was a fact of life in Hong Kong back then and reporters were always on the lookout for any leads.

But even in Hong Kong there were still limits to how much anyone knew about what was happening in China. I can recall one late night at the paper as the editors juggled with all the stories from a big news day. Nikita Khrushchev had been overthrown as head of the Soviet Union and Harold Wilson had been sworn in that day as British Prime Minister, his party having defeated a 13-year-old Conservative government (in a British colony, that was a big story). There were also developments as the US presidential election campaign.

But there were also rumours that China had that day exploded its first atomic bomb. There were a great many jangled nerves in the newsroom as the deadline approached and still no word came from Peking (as it was in those days). Eventually confirmation arrived and it was all over the world’s newspapers the next day.

Today Beijing issues statistics and reports, and the world’s media can post journalists in the capital. But are we any better off than the “China watchers” in Hong Kong 50 years ago? Well, yes, obviously, but there are still problems with knowing what is happening inside China.

Today it has been announced that Wang Baoan, head of China’s Statistics Bureau, is facing investigation due to “serious violations of discipline”, which phrase the world’s media is interpreting as corruption. This is bound to stir up further the growing concern about the reliability of China’s statistics.

For all we know, all statistics relating to rare earth production, graphite production, use of lithium, how much gold the central bank has been buying, could all be wrong. No one is sure.

An increasing number of people no longer believe Chinese figures, and they’re not your usual conspiracy theorists this time. At the Davos economic forum in Switzerland last week, former IMF chief economist and now Harvard professor Kenneth Rogoff dismissed Chinese information as being largely propaganda and their figures on non-performing loans as “fictitious’, warning that the debt piling up in China was a shock to the world just waiting in the wings.

The Chinese news agency Xinhua recently reported that figures had been fudged in three north-eastern provinces, Heilongjiang, Jilin and Liaoning (the first mentioned an important graphite player). The Washington Times earlier this month ran an item on the issue headlined “The country that tricked the world”. Leland Miller, president of China Beige Book International has described China’s official figures as “absolute make-believe”.

For December 2015, Beijing reported increased exports but the Bloomberg news service has been reporting that much of this “trade” could actually be made up of fake invoicing. Also, analysts at Nomura figured that the export figures were being skewed by the inclusion of capital outflows; these flows, more correctly called “capital flight”, are evidence that many wealthy Chinese are trying to get a much of their money out of China as quickly as possible.

Even the French economics minister, Emmanual Macron, has recently gone on record saying he does not trust statistics relating to the Chinese economy. Some time ago, the noted economist Nouriel Roubini wondered about how, when it can take the U.S. weeks or even months to nail down economic data, China (which is less developed, is much bigger and more populous) was able to compile figures much more quickly.

On InvestorIntel so many of the issues we discuss involve China, either as a producer or consumer. To a great extent, we may have been working in the dark.


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Comments

  • Adrian Nixon

    Robin, this makes fascinating reading thank you. It looks like there are further shocks ahead if we cannot trust the data – the truth will out eventually.
    It also has echoes with a programme Robert Peston made a while ago at the BBC. Here is the link if you can access this from your part of the world.
    http://www.bbc.co.uk/news/world-asia-34261550
    The basic theme was that China has built a house of cards economy fuelled by debt. The underlying sustainable level of growth should be around 4% and that real change needed to be political as well as economic.

    January 27, 2016 - 9:03 AM

  • Jeff Thompson

    Robin,
    Do you think the suspect data mostly occurs at the macroeconomic levels where most of the world’s attention is focused, for example with GDP growth, national debt levels, gold reserve levels, inflation/deflation rates, or does the manipulation extend down deeper into subindustry data, for example rare earth exports/supply/demand data?
    Jeff

    January 27, 2016 - 8:32 PM

  • Robin Bromby

    Nothing liked throwing down the $64,000 question, Jeff. From what I read, it may be happening at various levels. E.g. the investigation into the Statistic Bureau chief came close on the heels of his issuing reassuring words about the state of the Chinese economy. We have provincial governments looking after their own interests, such as building unneeded coal-fired power stations because these can be taxed at the provincial level. Ditto with all the ghost buildings in 3rd and 4th tier cities. I am veering to the view that it also happens at the highest levels because the ruling elite needs to keep a lid on discontent. Also, declared gold holdings at the central bank: there was a gap of 6 years between updates, and the latest one looked suspiciously low to me.
    But no one, outside China, knows. All I can say is there are enough expressions of concern to support the “where there’s smoke …” reaction.
    The biggest worry is the level of non-performing loans in the Chinese system; there are plenty of highly credible people who think the situation is dangerous, but you wouldn’t know that from the official figures.

    January 27, 2016 - 9:22 PM

  • Jeff Thompson

    Yes, far too much of the world operates on credit. No one seems to value the old-fashioned “pay as you go” mentality, and It looks like it is now China’s turn to also learn the hard way. As for China’s gold holdings, there are a series of recent articles you may find of interest by Koos Jansen on “Seeking Alpha” where he studies the minutiae of the gold flows through the Shanghai Gold Exchange and attempts to rectify the inconsistent and perhaps deliberately misleading data that is published, one part of this larger puzzle.

    January 27, 2016 - 11:34 PM

  • Ann Bridges

    Thank you, Robin, for sharing your insights and experiences. I, too, am skeptical of any official announcement. Xi’s agenda of cracking down on corruption can be manipulated for whatever political ends he wishes to achieve, including on a global scale. Without a robust 4th estate to vet the information, we should always be skeptical. And take a hard look at the demise of America’s media and journalistic integrity in the internet age of exciting opinions with flashy videos trumping investigative reporting and facts. Are we headed in the direction of China? Who vets D.C.’s #’s these days? When it comes to our reliance on rare earths for our future technologies, I’m deeply concerned, which is why I wrote my novel Rare Mettle. Hopefully it will bring this issue out into the public’s awareness.

    January 29, 2016 - 10:12 AM

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