Baltic Business Research

Benefits for European Investors from
Improved Chinese Economic Statistics
Abstract
China has within two decades advanced from a lagging economy to a superpower economy. More and more different types of economic indicators and rankings put China in leading positions. Thus, the rest of the world has become increasingly dependent on economic growth and stability in China. Global markets are paying increasing attention to economic developments in China.
Consequently, there is an obvious need for a strongly improved analysis of the Chinese economy, both domestically and internationally, which assumes at least satisfactory statistical standards. However, the quality of Chinese economic statistics is still lagging – despite some slight improvement in recent years.
More could – and should – be done in order to provide better quality fundamentals to the analysis of the Chinese economy. This is an issue of institutional economics and governance. Insufficient statistical quality means poor or lacking input for economic policy, (financial) investment and other – corporate – decisions. Many groups of economic analysts and decision-makers would benefit from markedly
improved statistical standards in China, both inside and outside China. This includes Europe, too.
This paper can be interpreted from three points of view. The first angle refers to the scientific area of asymmetric information, institutional economics (governance), behavioral finance and my own surveys.
The second angle puts an emphasis on what have so far been neglected parts of risk analysis when it comes to China itself and foreign relations/commercial activities with China. The third angle can be linked to the creation of new opportunities that come from major statistical improvements and better conditions for analysis. In all three cases, an obvious impact on Europe and the whole global economy
can be found – both on a microeconomic and a macroeconomic level.
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The Chinese Economy – 20 Burdening Conflicts of Goals
Summary / Abstract
During 2010, China became the number two country in the world measured by total GDP (in PPP terms).
Without a doubt, GDP growth has been impressive since the start of the opening-up policy in 1979, particularly in the past decade. However, China’s extremely rapid economic growth has also had its price.
This is expressed in the many different economic imbalances – but also in a substantial number of conflict of goals for Chinese economic policymakers. Thus, one big question concerns the strategic areas that will dominate Chinese policy in a shorter and longer perspective. The other big question is to what extent policy priorities can really be achieved. Finally, one should raise the question whether the officially desired priorities contribute to a healthier trend in the Chinese economy.
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During the spring of 2011, global financial markets finally became more concerned about possible unhealthy developments in the Chinese economy, drawing focus away somewhat from previous pure GDP analysis – which, by the way, mostly happened without really considering the statistical shortcomings of the GDP numbers (see also my new discussion paper from May 2011 with the title “Benefits from improved Chinese statistics in a European/global investors’ perspective”, SNEE). Now, global economists increasingly consider Chinese inflation and the risk of bursting real estate bubbles in (metropolitan) Chinese cities. However, the interpretation of the Chinese economy is still strongly underdeveloped in our part of the world. This is understandable, since it takes years to get a feeling for Chinese economic reality and the conflicts that – in Western eyes – may impede the speed and correctness of the official policy answers.
It is also important to understand that the Chinese are not looking for rapid changes but tend to prefer more cautious, gradual approaches. This is the traditional, cultural background which sometimes may be well-justified – but which many times does not fit the “rules” of the global economy or vice versa. For example, we can see these days that global financial markets do not even appreciate the – compared to
Chinese conditions – relatively fast EU reactions on currently existing difficulties in the Euro zone.
Looking at the situation today, twenty Chinese conflicts of interest could easily be singled out in this paper. They are presented below. This situation is worrisome since the other big country with burdening large economic imbalances – the U.S. – still depends largely on huge capital inflows from China. Many steps have to be taken in order to decrease this special global imbalance between the two leading economies in the world from today’s frightening levels. Chinese conflicts of economic policy objectives play an important role in this context. They appear as follows (in no particular ranking order):
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LNU’s China Panel Survey No 12 – May 2011:
“Some cooling down seems to become reality”
Summary
• Our so-called overheating indicator rose in May to 7.3, up from 7.1 in October 2010
(10=extremely overheated). Around 25 China experts from Asia, North America and Europe participated once again in the survey.
• GDP forecasts (average): 2011: 9.0 %, 2011 q4: 8.4 %, 2012: 8.6 %. The outlook for
2011 is roughly unchanged – but a notch weaker for 2012 than last fall.
• 44 % of the panelists predict that the RMB will have a slight appreciation against the U.S. dollar in 2011 up to 5 % and 44 %, as well as a more visible one (by more than 5 %). The latter share has been growing since last October.
• 100 % of the panelists think that there is a dangerous price bubble on the real estate market (Oct 2010: 95 %).
• The panel’s grading of confidence in the Chinese economy looks as follows:
(5=very high confidence; 1=very low confidence)
3 years from now: 3.7 5 years from now: 3.3 10 years from now: 3.2

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