Ho John Lee’s Weblog

SimonWorld notes some analysis in the South China Morning Post on last week’s official Chinese GDP numbers.

Last week China reported another stunning GDP growth number of 9.4%. But as we’ve found numerous times before, the numbers underlying the GDP calculation don’t add up. Either China’s consumers went on strike or fixed asset investment has been over-estimated. Jake van der Kamp is on the case and reaches an unsurprisingly but important conclusion:

…It seems from this that in the year to September the man on the street spent 17 per cent less on daily necessities and toys than he did the previous year. But this is not what other official statistics say. They say that retail spending for the year to September was 13.6 per cent greater than it was the previous year (the blue line) and that this retail spending alone was almost twice as great as the remainder number we calculated for all personal consumption spending.

How is it possible?

It is not. The latest GDP figures from the mainland simply do not add up. I hesitate to use the word “rubbish” to describe them but I am starved of a better one.

I think the enormous discrepancy most likely results from an overstatement of fixed asset investment. Capital spending probably is much less than the National Bureau of Statistics says it is. This would imply something else again, however. It would suggest that a vast amount of money earmarked for capital projects was embezzled by corrupt officials and used instead for personal spending on luxury services and toys.

I shall not suggest that this surprises you.

Every second anecdote from the mainland tells you it happens every day. All I have done is put some possible numbers to the scale of it, a very big scale indeed. But I do suggest to the National Bureau of Statistics that it adopt a brand new approach for checking statistics, a new one to the bureau that is. The next time it publishes data it might want to check that the sum of the parts adds up to a given total.

It’s always worth taking any government reports with a grain of salt. In particular, no one actually believes the published numbers by the Chinese government. But this offers a glimpse at some of specific disconnects in the official reporting system. Plus, “rubbish” as financial commentary is pretty entertaining.

For reference, 15 trillion yuan is roughly $1.85 trillion US dollars. The US GDP in 2004 was roughly $11.75 trillion US dollars.

This entry was posted on Sunday, October 23rd, 2005 at 8:48 pm and is filed under Finance/Investing, Front Page. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.