To paraphrase the homespun wisdom of Forrest Gump, China’s economy is like a box of chocolates … You never know what you’re gonna get.
Inside, if you are lucky, you will find the odd morsel of data which will cast a spotlight on the state of the nation.
But usually, it can be a game of numbers as baffling to economists as it appears to be for the National Bureau of Statistics.
Officially, GDP, or gross domestic product, growth edged higher at 6.2% in the second quarter compared to the same period last year. Again, it was well within the 2019 target of between 6% and 6.5%, even though it hit a 27-year low.
“‘Politicians use statistics in the same way that a drunk uses lamp-posts – for support rather than illumination.’ As Scottish poet Andrew Lang reminds us, statistics should be read critically,” Northern Trust, a financial services group based in the United States city of Chicago, stated in a report last week.
“The onus is on every nation to provide the most accurate data possible. [But] China has long been suspected of not taking this spirit to heart. Its reported economic growth has been unusually robust and smooth, leading to doubts that art is being combined with science in the compilation of economic output,” it continued.
“Observers have generally chosen to look the other way, but heightened suspicions of incomplete or inaccurate data are adding uncertainty to what is already an uncertain situation for China’s economy,” the study compiled by Chief Economist Carl Tannenbaum, Senior Economist Ryan James Boyle and Associate Economist Vaibhav Tandon added.
Concerns revolve around crucial figures such as GDP growth, factory output and business confidence as the trade war with the US drags on amid China’s slowing economy.
Earlier this year, Leland Miller, the CEO of the influential advisory company China Beige Book, underlined the problem when he questioned the veracity of NBS statistics.
“The Chinese published GDP numbers are absolute garbage,” he said in February. “It’s certainly the consensus that these numbers are unreliable.”
Transparency is the main issue.
In December, the Shanghai University of Finance and Economics released its annual survey on the 31 provincial-level regions. The results were startling.
High-tech and manufacturing hub Guangdong topped the poll, scoring 69.38 after supplying nearly 70% of the information requested by researchers from the university’s Public Policy Research Center.
Least transparent was Jiangxi, which is situated in the southeast of the country, with a rating of just 26.98 while the average score was 53.49.
“[But] the general level of transparency in China’s local governments remains poor,” the study concluded.
While progress has been made, what stood out was the Guangdong stats.
Home to tech titans Tencent and Huawei, the region stopped releasing monthly updates of a key indicator that gauges growth momentum in the massive manufacturing sector.
The decision was taken after the Bureau of Statistics claimed that the local purchasing managers’ index, or PMI, on factory activity was “illegal” without going into details.
Since the coastal province, which includes Shenzhen, is a vital export center, the move raised more than a few eyebrows.
“The mainland economy is under pressure, as we see consumer and factory data are very weak. Actual private sector and consumer demand are weakening. The absence of the economic data would only exacerbate suspicion [about the true condition of the economy],” Shen Jianguang, the chief economist at JD Finance, said at the time.
It is this “suspicion” about the health of the world’s second-largest economy which is clouding a distinctly murky picture.
Moreover, the “discrepancies” center around regional and national numbers.
“Though the discrepancy between regional and national GDP data has improved, the gap is still large,” it said.
“Measurement errors are unavoidable in an economy, particularly in emerging economies as large as China. But skepticism about the accuracy of the official Chinese data has intensified,” the study added.
Indeed, a report in March entitled A Forensic Examination of China’s National Accounts by the Brookings Institution in Washington showed that China over-reported its GDP growth between 2008 and 2016 by an average of two percentage points.
So what is the answer to a conundrum in a country where many state-run organizations consider openness a vice and not a virtue? Change the system.
“For those looking for an alternative measure, the Li Keqiang Index (named after China’s Premier), is based on [a] tangible economic activity like lending, electricity consumption and rail cargo volume,” the Northern Trust study said.
“Commodity exporters in Latin America and Africa see the slowdown in Chinese imports reflected in import volumes and value. Recent failures of regional banks in China are just another indicator of problems that do not get reflected in the rather optimistic real GDP data,” it added.
Refining the process would ease fears that the depth of the downturn is far worse than Beijing’s narrative. After all, these are turbulent times for the global economy.
The International Monetary Fund has warned about the dangers of rising Sino-US trade tensions and the fallout from the United Kingdom crashing out of the European Union without a Brexit deal on October 31.
To add to the mix is the standoff in Hong Kong between the pro-democracy movement and the city’s de-facto political leaders.
Finally, there are now serious question marks hanging over China’s economy and the way the numbers are crunched.
As Christopher Balding, a former associate professor of business and economics at the HSBC Business School in Shenzhen and author of Sovereign Wealth Funds: The New Intersection of Money and Power, tweeted after the first-quarter figures came out in April:
“What economy grows at 6.4% but sees total business electricity consumption shrink by 1%?”
Point taken. But then, you never know what you are going to get, just like that box of chocolates.