China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

China’s communication on the corona virus – reality and opportunities

February 27, 2020

More recently, the corona virus has also started to frighten stock markets. The virus has reached more and more countries – and finally Europe more visibly as well, particularly Italy. The outbreak is spreading. One may say unfortunately and unexpected – but for virologists certainly no surprise.

Statistical sources

China remains by far the most negatively affected country with its epicenter in Wuhan (see https://www.ft.com/content/a26fbf7e-48f8-11ea-aeb3-955839e06441, also the following more anonymous source with similar numbers https://www.worldometers.info/coronavirus/#countries). Here I could find for China on February 26 totally 78 073 cases with infection, 30 049 totally recovered people and, unfortunately, 2715 total deaths.

It must be regarded as impossible to judge more precisely the quality and correctness of these statistics. Despite further search, however, I could not find better or more reliable info on the Chinese infection and recovery cases.

The corona virus in Chinese media – a new opportunity for more transparency?

There is a widely spread belief outside China that the numbers for the initial outbreak of the epidemic, the unregistered cases of the disease and the true lethality rate strongly underestimate real developments. This mistrust is certainly caused by inconsistent and limited reporting in the beginning of the crisis – but also by the long-time transparency bottlenecks which I addressed many times in the past.

Having studied more lately quite a number of articles on the corona topic in Chinese media takes me to the conclusion that the virus problem indeed dominates the headlines. However, these reports are mainly presented with encouraging attributes, supported by selected positive comments on all the managed efforts from official and prominent voices from abroad.

Thus, hope dominates, also when it comes to the economy. President Xi Jinping has recently been stating that China can and will meet this year’s social and economic goals. This conclusion underlines what has been written in one of my previous blog that this year’s GDP growth should come in as close as possible to the growth goal of “around 6 %”.

But: The content of “as close as possible to 6 percent” may or will be changed in reality to a somewhat lower “as close as possible”, at the same time using the foreseeable and unforeseeable negative consequences of the corona virus as an excuse.

Right or wrong, China has recently also received some international praise for its fight against the corona virus. In my view, China has now a unique opportunity to improve transparency and international recognition by communicating as openly as possible about the corona virus and the economic/statistical consequences.

Why not commencing now – with the corona virus as the concrete starting point – a new kind of opening-up policy aiming at better transparency after Deng Xiaoping’s important opening-up approach for more cross-border trade in 1978/1979?

At the end of the day, transparency always means a virtue.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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China’s political leadership and the coronavirus – how to handle growth objectives and statistics?

February 10, 2020

Hur kommer Kinas ledare att tackla coranavirusets negativa tillväxteffekter?

Summary / Sammanfattning på svenska

Det skrivs för närvarande väldigt mycket om de negativa effekterna på Kinas ekonomi p g a coronaviruset. Detta trots att det saknas underlag till mer precisa beräkningar. Effekter från minus 0.5 upp till minus 1.5 procent av BNP nämns såväl för det första kvartalet med åtföljande normalisering som för helåret 2020 – trots den helt omöjliga förutsebarheten. Dock förbises en annan intressant fråga: Hur kommer Kinas politiska ledare att tackla den kommande BNP-statistiken med tanke på det så sent som i januari i år uppsatta BNP-tillväxtmålet för 2020 på “omkring 6 procent”?

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Every day we can read about revised GDP forecasts on China as a consequence of the coronavirus. Economists “introduce” themselves as medical doctors, virologists and experts on both Chinese politics and statistics – many of these economists, however, dealing with China only occasionally. For this reason, readers of these new China forecasts should be very careful and also consider possible psychological overreactions or minimization. I hereby stress the word “possible”. An unknown factor is also Africa with many Chinese working there. Hopefully, negative news from there will not reach us.

Analysts neglect the political strategy conflicts

The coronavirus does not fit at all in the communist party’s economic planning process. First, there is – or should be according to previous plans – the “evaluation” of the 60 relatively detailed reform plans from the Third Plenum in 2013 which should give “significant” results by 2020.

Second, in 2021 the Communist Party of China will celebrate its 100 th anniversary. A major weakening of GDP-growth the year before would certainly not be appreciated by the leaders of the strong Standing Committee and all the other highly ranked party officers.

Third, the next five-year plan will start already in 2021. This means that the underlying growth trend will be even more difficult to find if the coronavirus really should cause structural or sustained psychological damage. And it is certainly not easy to recognize and determine appropriate assumptions and preconditions five years ahead in this critical and not normal year of 2020.

Fourth, considerably slower GDP growth in 2020 could indeed jeopardize the official objective to double GDP in the decade to 2020. It will be a narrow race in any case.

The alternatives

Altogether: Looking at 2020, it appears obvious that President &:Chairman Xi Jinping and the other political top leaders around him actually cannot “afford” a clear weakening of GDP growth. Such a negative development can either be counteracted  by further fiscal or monetary stimuli and/or by “window dressing” of GDP statistics (as critics interpreted surprising upward-revisions of GDP last fall).

It is hard to imagine that China’s political top leaders (in the Standing Committee) will remain passive without influencing GDP in a more positive direction. In my view, trying to remain relatively close to the official growth target will have political priority. But I do not want to give a GDP-growth number for 2020 at this very moment.

Conclusion

Clearly missing the annual growth target and/or the goal of doubling GDP would be negative or even embarrassing for China’s political leaders – unless the coronavirus really would make the situation much more critical. Consequently, keeping GDP growth for 2020 as close as possible to the “around 6-procent target” seems to be the guiding strategy.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Scrutinizing China’s GDP in 2019 – more to be discussed than the pure numbers

January 20, 2020

Kinas BNP för 2019 under luppen – det handlar om mer än siffror

Sammanfattning / Brief summary in Swedish

Under det sista kvartalet 2019 diskuterade jag vid flera tillfällen den relativt lättgjorda siffermässiga BNP-prognosen för 2019 och den kommande officiella målsättningen för 2020 års BNP-tillväxt (exempelvis i chinaresearch.se från den 18:e och 2:a december samt från den 28:e oktober). Utländska intressenters tillgång på de kinesiska statistiska originalkällorna ter sig fortfarande otillräcklig. Det innebär att den även i år – trots det förestående nyårsfirandet – alltför snabba publiceringen av det kinesiska BNP-utfallet för 2019 ånyo sätter sina frågetecken avseende kvalitet, omfång och noggrannhet.

I had my doubts about the quality of Chinese GDP statistics for quite some years. Major qualitative progress still is not visible – even if some improvement may or should have taken place. One of the problems in such a context is certainly that motivated increasing credibility tends be hard to achieve when such doubts have been existing for many years.

Predictable GDP

Briefly summarized, Chinese GDP results in 2019 looked as follows (which I have been predicting several times during the past quarter in my own blog chinaresearch.se, e.g. on December 18 and 2 and on October 28):
GDP: +6.1 % yoy; GDP Q4 yoy: 6.0 %, Q4/Q3:+1,5 %).

Obviously, the Chinese remain being interested – as previously considered – in keeping “the six” in front of the decimal point. This is also – most probably – why the official GDP-growth objective for 2020 is set at “around 6 percent” as foreseen here a couples of weeks ago.

Such a goal for GDP growth seems to be ambitious but also prestigious to achieve – “prestigious” particularly since 2021 is such an important year for China’s political leaders. Therefore, I cannot imagine an official GDP growth (very slightly) below 6 % during 2020 for more than maybe one quarter or so. If necessary, the GDP-growth curve probably “has to be reversed” to the better during 2020 ahead of the 100th anniversary day of the Communist Party in 2021 and the start of the new five-year plan – the 14th – the same year.

Ten GDP issues to discuss further after the national-account publication

International analysis after GDP publication on January 17 this year by the National Bureau of Statistics (NBS) turned out to remain mainly on the surface. Below, ten points with an obvious need of more discussion and more profound analysis are given – unless I have overlooked encouraging developments more recently.

  1. Still lagging transparency.
    The summary of the national account for 2019 is written in the old style of planned economies with many numbers. The structure of the report makes the whole information difficult and monotonous to read. The lagging transparency may be at the expense of understanding and quality of analysis.
  2. Still insufficient modernization of national accounts.
    Already in previous years, I criticized that too much focus is put on the production side of national accounting which should be considered as a serious shortcoming. Also this time, I cannot find changes of GDP aggregates such as private consumption and net exports in real terms.
  3. Still too even numerical developments between quarters and years.
    Almost even GDP numbers from quarter to quarter (2019 quarter on quarter, q1-q4: 1.4, 1.6, 1.4 and 1.5%) and the high predictability of annual GDP changes remain strange. So does the very early publication on January 17, also when considering the Chinese New Year celebrations.
  4. Official growth objectives are regularly met.
    In my view, this phenomenon is strange as well (happened again in 2019, “6 to 6 ½%” – the outcome: 6.1%, despite structural domestic growth problems and international impediments from the trade war and the general downturn of the global economy). 6.1% may reflect a somewhat negative bias.
  5. How can statistical improvements be discovered?
    As has been singled out above, it is hard to find statistical improvements between the years. More frequent information – if available – would be useful in this respect.
  6. Where is a deeper analysis of structural achievements in the past year?
    Sure, some hints can be found, for example the officially high number of 236 million floating people of a population that in 2019 just exceeded 1.4 billion. I also like all the summing up of remaining problems that are mentioned in the comments on the national account for 2019 close to the end of the summary. However, what I still miss all the same is the continuous, regular and also systematic reporting on the development of these structural problems, maybe at other occasions. Certainly, one can never be sure having read everything about this topic – but this kind of difficulty is also an institutional shortcoming.
  7. Still missing: a deeper discussion on future-oriented production.
    Normally, such a discussion is not part of ordinary national accounting. But the Chinese publish the growth rates for agriculture (2019:+3.1 %), industry (2019:+5.7 % but considerably more for high-tech manufacturing) and services (2019:+ 6.9 %). At least, this segment is partly taken up by Chinese authorities which may be helpful to some extent. We also learn that that the value added of the service sector now even exceeds the aggregated value of both industry and agriculture. It would be wonderful to learn even more about these developments – without setting expectations too high that this will be the case.
  8. “Maintaining stability”has been achieved – what do we know about this?
    There is a lot of laudation in the introduction of the recent annual GDP report, including that stability has been maintained. What do we really know about this – and what does it really tell us? Anyway, also such an information does not really belong to national accounting. But having said “a”,…
  9. More to look at: statistics on urbanization.
    Urbanization in China continues to increase. This note is part of the comments on the national accounting for 2019. The official number of urbanization is now 60.6 percent of the total population. Without having tools to check these population numbers, it may be worth-while looking regularly at the population statistics. Urbanization will be – or should be – a future main driver of private consumption.
  10. For neutral observers: How much skills and/or herd mentality can be found when it comes to expectations and interpretation of specific economic statistics, for example on GDP?
    This is certainly not a topic for China’s public administration but it would be interesting to know more about China analysts’ independence or the presence (absence) of exaggerated psychological herd mentality when it comes to (statistical) forecasts or analysis. When regarding the qualitative shortcomings of Chinese statistics, non-government or private conclusions on the Chinese economy usually seem to be too uniform – running to strongly in the same direction.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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