China Research

Reading the Fed’s press release from September 17 about unchanged short-term rates in the U.S should lead to reflections why the global nervousness about China was not mentioned explicitly. It could have been for diplomatic reasons. But it also could have been the case that the Federal Reserve feels confused about the real China risks. The words being used in the press release from September 17 about the China risks were as follows: “Recent global and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term”.

The questions are: do the Fed’s worries about China mainly concentrate on the enormous drop of the stock market in summer and – possibly – on the mini devaluations of the RMB? Or do general fears of a more pronounced economic downturn in China make the Fed particularly nervous about growth prospects, even for the whole group of emerging countries and the U.S. itself? Does the Fed see more deflationary effects that may come from such a possible negative growth development? Or has the Fed – like global financial markets – only recently started to deal with China risks more systematically which may include all the political, social and economic challenges that China will be confronted with in the forthcoming months and years (and which I discussed and also summed up in this blog many times before). Did the Fed finally find out that the uncertainty about China should be considerably larger than assumed before?

We do know by now, however, that the Fed cares about China. We can come to the same conclusion when it comes to the Swedish central bank – at least when reading the comments of some decision-makers during the previous policy meeting on September 2. But what is their real concern about China more concretely? Is it limited to the possible impact on future inflation in the own country, such as Sweden (which would be too simple)?

It would be nice to know somewhat more about this latter issue, both from the Fed, the Riksbank and other central banks. Finally: What can be said about the China expertise in central banks outside China? I know that the Federal Reserve Bank of San Francisco and Finlands Bank (BOFIT) as part of the ECB are doing ambitious research on China. But what about all the other central banks?

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

Back to Start Page

This week, China announced a change that I have been pleading for many times in the past few years. Finally, Chinese authorities have announced that they will abandon the cumulative GDP accounting (for q3: q1-q3 total minus q1-q2 total). Instead, q3 will be calculated and published separately. This will happen for the first time on October 19. In theory, it is a step in the right direction.

The Chinese tell us now that GDP calculations will be more precise. Hopefully! One indication will be if the National Bureau of Statistics (NBS) will be allowed to go for more visible growth fluctuations. This hasn’t been the case so far. Another positive signal would be the publication of quarterly results for the GDP aggregates such as private and public consumption, investments, net exports, inventories, etc.

So far, trust in GDP statistics has been low. The above-mentioned reform of GDP calculations does not automatically increase trust and transparency. Gaining trust takes time and needs continuous efforts, as I wrote in my last blog. It will take time to find out whether the accuracy of China’s GDP calculations will be improving by this methodical change, as promised by the NBS.

Despite all uncertainty, it is absolutely certain that China must improve its statistical standards and its transparency if it really wants to become a positive player on global financial markets and an appreciated partner country to invest in.

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

Back to Start Page

This morning, one could read in Chinese and international press that the statistical office of China (National Bureau of Statistics, NBS) made a slight downward revision of GDP growth for 2014 – from 7.4 to 7.3 percent. This is exactly the phenomenon my colleague Doris Fischer and I describe in our recent paper “China’s strive for quality and growth data” (SNEE, see also my latest blogs in chinaresearch.se from August/September and in http://blogg.lnu.se/fromlet-bbsresearch/blog/blogg/kina-kortsiktiga-utmaningar-i-konflikt-med-langsiktiga-mal/).

The point is that revisions in Chinese statistics – if they exist – still are tiny and, thus, not really trustworthy. Very small revisions of this kind do not exist over time in our part of the world. Why should they reflect reality in China?

A similar example can be picked from official Chinese forecasts for GDP. In most cases they become more or less exactly verified later on by official statistics. For 2015, the official forecast for GDP growth in China is at 7.0 percent. Consequently, we should not be surprised about the fact that Chinese GDP growth for the first half of 2015 came in exactly at 7.0 percent. It can be added that Chinese officials also announced these days that GDP growth is on track. Following tradition, this implies that the outcome of GDP growth in China will be very close to 7 percent.

What does all this mean? An important conclusion should be that we do not know how much GDP growth currently is in reality. 7, 6, 5 percent – or something else?

Trust in Chinese GDP numbers will be first growing when Chinese leaders allow for more deviation from expectations and official forecasts. To get there, won’t be easy for psychological reasons. The big question is: from which stage become official numbers really trustworthy? Apart from this, we still get confronted with lagging transparency.

But we know from research and experience: gaining trust takes time. Why not start such a process already now?

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

Back to Start Page