China Research

¤ Some striking statistics

Currently, Chinese authorities publish an increasing number of (preliminary) economic and social statistics (to the extent that specific statistical time series exist at all – which many times is not the case compared to the statistical variety in developed OECD countries). In the past few years, I have been writing a number of papers and articles on the lagging quality of Chinese statistics – but I have also called for humility since China is such a big country that cannot achieve improvements rapidly and certainly not new time series within a short period of time. However, humility should not induce that certain existing official statistics sometimes appear strange or surprising (or that certain sensitive statistics are not published). Below, I give some examples.

GDP: China’s GDP grew by 7.4 percent in 2014. Some downsizing should be not particularly remarkable when looking just at the average for the whole year. But what about the following quarterly GDP increases in 2014, yoy: q1: 7.4, q2: 7.5, q3:7.3, q4: 7.3 percent? Such an even development is unusual in our part of the world. And in 2013, for example, it was almost the same phenomenon (q1:7.8, q2: 7.5, q3: 7.9, q4: 7.6). Where is the – in other countries – usual volatility of GDP-growth rates?

GDP aggregates: Publication of GDP aggregates is – in my eyes – still insufficient. My own findings tell me that there is only a distinction in shares of total GDP for total final consumption expenditure, gross capital formation and net exports for goods and services. But I have never seem a special headline showing “private consumption”(which should be particularly interesting when analyzing China’s new objectives of economic policy). Please tell me if I have missed something!

GINI: This indicator for income inequality (income distribution) “improved” in 2014 to 0.469 from 0.473 the year before – but still above the warning level of 0.40 set by the UN. The uneven distribution of income has certainly been embarrassing for China’s leading politicians for quite some years. Thus, improvements of the GINI indicator must be regarded as important. But by as little as 0.004 index points? This statistical accuracy looks somewhat strange.

Unemployment: Looking, for example, at the migration number below may indicate that unemployment should be higher than the officially noted urban unemployment rate (4.1%). Since the rural population counts for almost half of the Chinese population, there is also an urgent need to achieve acceptable statistics on rural unemployment. However, improved methodology as regards unemployment statistics have been announced recently. What will be the result?

Very small annual changes: As can be observed by the following new statistical numbers for 2014, changes from 2013 to 2014 are often very limited. Too limited?

¤ Some interesting official statistics for 2014

¤ Population: 1.37 billion (1,37 miljarder in Swedish); of which 54.8 % urban and 45.2 % rural population; of which 51.2 % male and 48.8 % female citizens; 138 million 65 years or older (2013: 132 million)

¤ GDP aggregates (share of GDP): total consumption 51.2 %, investment 48.6, net exports: 0.2 %

¤ Employment: 773 million (urban 393 million; total 2013: 770 million); migrant workers: 274 million citizens

¤ Shares of production: primary sector 9.2 % (2013: 10.0%), secondary sector 42.6 % (2013: 43.9%), tertiary sector 48.2 % (2013: 46.1%, for the first time larger than the secondary sector)

¤ Consumer Price Index (average): 2.0 % (of which urban inflation 2.1%, rural inflation 1.8 %; 2013 average 2.6%)

¤ Foreign exchange reserves (year end : 3 843 billion USD; 2013 year end: 3821 billion)

¤ Retail sales of consumer goods: 26 239 billion yuan (+10.9 % in volume terms ); of which online sales : 2 790 billion (+49,7 %)

¤ Internet users: 649 million (of which 557 million mobile internet users; total internet coverage 47.9 %)

¤ Real disposable income: + 8.0 % (2013: 8.1)

¤ Research & Development: 2.1 % of GDP (2013: 2.1%)

 

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

 

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In the last China Research issue, Hubert Fromlet shared his thoughts on the tricky issue of China’s GDP data reliability. Since then, GDP data for 2014 has been officially announced: 7.4 percent. International media have commented this negatively, with the argument that this growth rate was lowest in 24 years. One might argue that the real tragedy about this number is the only tiny deviation of 0.1 from the growth target propagated in early 2014 and in our lack of trust in this result. Why all the talk about upcoming lower growth, why introducing the hardly attractive concept of the “new normal” state of China, if the target was just failed by 0.1 percent? Have the sinister news of the last months just been some spinning efforts to make 7.4 bad enough, but still credible? Has growth actually been much lower, as Hubert Fromlet’s analysis suggested? Are we back to a situation like in 1998?

In that year, the Chinese government had propagated a growth target of 8.0 percent, a target that was soon threatened by the repercussions of the Asian financial crisis and the huge floods hitting several provinces around the Yangzi during that summer. The government reacted by stressing the dedication to still achieve the 8.0 growth target. The official growth rate of that year was later published as 7.8 percent, arguably a very Chinese effort of “spinning”: Less than the target, thereby increasing the credibility of the number, but still close enough to satisfy internal and external expectations. Economists, both in and outside China, questioned the reliability of these data. The American China economist Thomas Rawski later become famous for his reality check on the GDP data by using alternative measures for growth based on energy, traffic, real estate etc. statistics. The results were devastating, indicating growth rates of around 2.0 percent for China’s economy for 1998 and following years. When his conclusions started to be circulated in popular international media, Chinese media started a counter propaganda strike, questioning the methods of Rawski’s analysis.

Only few years later though, when – in the course of the more recent leadership change – Chinese media tried to stress the economic competence of Li Keqiang, they repeated a story of him questioning reported provincial GRP (gross regional product) data. He was said to use alternative indicators instead to get a realistic picture of provincial economic development, indicators that surprisingly resembled those of Thomas Rawski.

So, are Chinese GDP data just deliberate fabrications? Probably not: There exist a number of technical reasons why Chinese statistical data are troubling, some of which are difficult to avoid: First, China’s gradual economic transition necessitates a gradual adaptation to the internationally practised System of National Accounts (SNA). Progress in this transition, for example by including the service sector into the reporting system, explains a lot of changes in Chinese statistics over the last 35 years. Second, China’s fast growth regularly necessitates adaptations of the units of analysis. For example, if it were appropriate to count gross capital investment above 500,000 Yuan in the 1990s or early 2000s, with investment volumes continuously on the rise such investment projects today are only counted if they exceed 5 million Yuan, leading to a one-time decrease in growth rates of FAI in the year when the adaptation was initiated (2010).

But still, there has been an element of fabrication in GDP data in the past that until today feeds our suspicions: Chinese GDP data is regularly published in the China Statistical Yearbook. Each yearbook publishes the latest nominal GDP data as well as nominal and real GDP growth. Past data for nominal GDP is corrected in the current yearbook if necessary. In most cases since 1992[¹] (YB 2005, 2007, 2009, 2011, 2012, 2013, 2014) these ex post corrections only pertain to the previous year GDP, but in several years (YB 1996, 2003, 2004, 2006, 2008 and 2010) backward correction of nominal GDP data was undertaken for a number of years. The most substantial corrections of this kind happened with the Yearbook of 2006, when – based on a new census – nominal GDP data was corrected back for the years 1992 to 2005. At the same time, real GDP growth rates have seldom been corrected backwards. Only in the YB 2005, 2007 and 2011 could such backward revisions be observed with the most substantial revision for a long time series undertaken in the YB 2011. In economic terms, revising nominal data without adjusting real GDP growth accordingly implies that the implicit GDP deflator (China does not publish a GDP deflator, but also does not use the published consumer or producer price index as deflator) would have to be corrected accordingly. This again assumes that the flaws in original GDP data and the GDP deflator were of the same scope. Such an assumption is hardly convincing from an economic perspective.

To give an example: GDP nominal growth in 2009 according to the data published in 2010 was 13.2 percent, according to later revised nominal data it was just 8.6 percent. Real growth rate for that year is assumed to have been 9.1 percent according to the Yearbook 2010, which was revised to 9.2 percent in the Yearbook 2011. Thus, while the correction of the nominal growth rate was 4.6 percentage points, the correction of the real GDP growth rate was only 0.1 percent. Thus there must have been a major correction of 4.5 percentage point to the implicit GDP deflator!

In the years since 2010, backward revisions of nominal GDP have been comparatively small. This could indicate that GDP data has become more reliable. The problem is that we don’t know for sure. Following the logic of Chinese politics major corrections of GDP may have been deemed inappropriate in times of the global financial crisis and Chinese leadership change. If we assume this logic to be relevant, simple alternative calculation will not work anymore: If the Chinese Premier used alternative calculations in the past himself and if the Chinese leadership today really wants to cook the books in order to persuade Chinese and foreign observers that GDP data may go down, but only slowly so, the leadership would also know how to do the trick more convincingly than in the years around 1998.

It’s a real dilemma: How can the Chinese leadership reinstall trust in the numbers after they have themselves shown their distrust in past reporting? And how can we regain trust in today’s data after there have been so obvious flaws in the past? To me, the Chinese government has not to put efforts into explaining that lower growth rates may be the “new normal” situation for China. It would be much more helpful if the “new normal” stood for transparency and reliability of media and data.

[¹] The calculations presented here are not looking into the years before 1992.

 

 

 

 

 

 

 

Doris Fischer
Professor, University of Würzburg, China Business and Economics

 

 

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15 months have gone since the important strategic meeting of the – then – new Chinese political leadership (Third Plenum). 16 important reform areas were presented with totally 60 more detailed subareas – most of them linked to economic policy and more social well-being. In the year 2020, the results of the reform policy are intended to be checked. In 2022 a new political generation will come into power.

But what happened in reform policy during 2014? It is certainly not easy to check out reform achievements. Certain policy steps/measures are more long-term oriented and hard or impossible to recognize in the short run. In other areas – like the financial sector – many changes and improvements are added to each other and can be (theoretically) more easily analyzed. But even in this context, it is difficult to get a fair picture of what has been done.

After having daily studied economic news from China during 2014, I come to the conclusion that China last year de facto has entered a new era of economic reform policy. However, it seems to be hard or even impossible to evaluate Chinese reform policy/measures more exactly. Most direct references are linked to the cautious, market-oriented changes of the financial sector. But usually, analysts just find the fragments and remain, consequently, without helicopter view.

Transparency must increase! This would give China more appreciation and encouragement for the structural reforms that are indeed taking place – despite many times lagging speed and – may be – effectiveness.

Let’s, for example, look for a moment at the financial sector. Many – mostly small but necessary – reform steps have been taken in the last year. These reform steps were published and available also for foreigners; I have noted these changes myself. However, it seems to be impossible to find an illuminating and detailed summary of all the financial reforms – preferably separated in the domestic and the cross-border financial business.

Consequently, I would regard as a good idea if the official China could establish a website where all concrete economic reform steps or measures are summarized in line with the reform agenda from November 2013, covering, for example, the financial system, the environment, infrastructure, state-owned enterprises, municipalities, etc. – certainly provided with continuous updating.

This would be a good contribution and an easy way to (some) more transparency – based on published reality. China itself and the rest of the world would benefit from simple innovations like this.

 

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

 

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