The distrust some hold towards basic Chinese data may be misplaced
By SHU-CHING JEAN CHEN IN BEIJING
China’s former premier Zhu Rongji once ascribed ‘embellishment and falsification’ to the country’s national statistical system. Meanwhile, Li Keqiang, now its vice-premier, admitted to man-made data forged by local officials when he spoke in 2007 to the US ambassador, as revealed by WikiLeaks.
So how much trust can investors place on the integrity of potentially market-swaying data steaming out of Beijing? Incredible as it may sound, quite a lot. At least, that’s the conclusion of Tom Orlik, a Wall Street Journal correspondent and author of a new book, Understanding China’s Economic Indicators.
A Mandarin speaker who reads Chinese, Mr Orlik previously subscribed more or less to the popular distrust of all basic Chinese data. Not any more.
Mr Orlik believes exaggeration and embellishment are not aligned with Chinese leaders’ interest because they need solid data to help shape national policy.
He also dismissed the possibility of China keeping two books: one for outside consumption and the other for internal scrutiny. ‘If there are two books, then you’d start to see the government making decisions which don’t make any sense in the context of public data,’ he said in an interview with BT.
China appears to have cleaned much of its act since the Asian financial crisis in 1998 when it was caught brazenly cooking the book to report a 7.8 per cent growth in its gross domestic product (GDP) when it was collapsing.
‘What we’ve seen in the last 16 years following the Asian financial crisis is a significant move to improve China’s data collection system. Fundamentally, what happened is control in the data collection has been centralised, from industrial output to consumer price index, and household income,’ Mr Orlik said.
‘In 1998, they were still producing dodgy data. In 2010, they collected the data directly. They’ve taken the meddling local officials out of the equation. That means China’s national data is much more reliable.’
Beginning this year, for instance, Chinese statisticians took a big step by starting to compare GDP figures on a quarterly basis, rather than keeping to the old practice of releasing yearly growth trends which tends to smooth out turbulent quarterly fluctuation, like it did at the depth of the 2008-2009 financial crisis.
But improvement has been uneven. Each piece of official data still seems to run on a different internal clock, with varying speeds of progress, or stagnation.
Mr Orlik groups them into three categories on an integrity scale, with the most reliable being trade-related numbers.
‘The trade data are quite reliable and quite detailed. I think it’s because China joined the WTO (World Trade Organization). They had to meet much higher standards on their trade data. The whole trade data system really improved a lots when they joined the WTO,’ he said.
On the other end of the scale are incredulous figures relating to labour such as wages and unemployment, and inflation and house prices. Their departure from reality has not escaped the watchful eyes of Chinese analysts.
Figures about house prices and unemployment remain politically sensitive in China, but Mr Orlik said: ‘It’s not that they have politicians come in and change the data. It is really a benign neglect. Basically, they don’t bother. They rely on very old sample sets. That’s kind of convenience for them because it shows very stable employment.’
Hence, the official figures reported a constant 4 per cent unemployment rate each year, all the way through the last decade, despite a significant surge in 2009 suggested by other relevant indicators.
Standing in-between is a grey area such as GDP, consumer price index and fixed-asset investment, where data is not fundamentally flawed but does not reflect the full reality.
The government isn’t making up the data,’ he said. ‘But it is not reflecting what is going (on). It misses a part of the picture.’
How so? ‘It is difficult to measure the Chinese economy because it is growing very fast, and there are new sectors contributing to the data,’ he said. ‘The problem with Chinese GDP is that the economy is actually bigger than the government reports. The problem is not because of political manipulation. The problem is because they have technical problems in collecting the data. The national statistics cannot keep up with what’s happening.’
For GDP, in particular, the national statisticians were surprised by their own field-work findings twice in recent years: first in 2004, when its national survey reported GDP to be 16.8 per cent bigger, and then in 2009, another national survey added 4.4 per cent to the GDP.
Mr Orlik went back to history and suggested that one of the reasons that China uses a magic number of 8 per cent GDP growth every year as its national target could be the result of Deng Xiaoping’s intention for its economy to quadruple the size from 1980 to 2000, 8 per cent being the compounded figure. The other reason is 8 per cent growth is what is needed to create the number of jobs to keep the nation fully employed.
Perhaps Deng Xiaoping got it right all those years ago.
2 comments:
The art of reading China’s statistics
The distrust some hold towards basic Chinese data may be misplaced
By SHU-CHING JEAN CHEN
IN BEIJING
China’s former premier Zhu Rongji once ascribed ‘embellishment and falsification’ to the country’s national statistical system. Meanwhile, Li Keqiang, now its vice-premier, admitted to man-made data forged by local officials when he spoke in 2007 to the US ambassador, as revealed by WikiLeaks.
So how much trust can investors place on the integrity of potentially market-swaying data steaming out of Beijing? Incredible as it may sound, quite a lot. At least, that’s the conclusion of Tom Orlik, a Wall Street Journal correspondent and author of a new book, Understanding China’s Economic Indicators.
A Mandarin speaker who reads Chinese, Mr Orlik previously subscribed more or less to the popular distrust of all basic Chinese data. Not any more.
Mr Orlik believes exaggeration and embellishment are not aligned with Chinese leaders’ interest because they need solid data to help shape national policy.
He also dismissed the possibility of China keeping two books: one for outside consumption and the other for internal scrutiny. ‘If there are two books, then you’d start to see the government making decisions which don’t make any sense in the context of public data,’ he said in an interview with BT.
China appears to have cleaned much of its act since the Asian financial crisis in 1998 when it was caught brazenly cooking the book to report a 7.8 per cent growth in its gross domestic product (GDP) when it was collapsing.
‘What we’ve seen in the last 16 years following the Asian financial crisis is a significant move to improve China’s data collection system. Fundamentally, what happened is control in the data collection has been centralised, from industrial output to consumer price index, and household income,’ Mr Orlik said.
‘In 1998, they were still producing dodgy data. In 2010, they collected the data directly. They’ve taken the meddling local officials out of the equation. That means China’s national data is much more reliable.’
Beginning this year, for instance, Chinese statisticians took a big step by starting to compare GDP figures on a quarterly basis, rather than keeping to the old practice of releasing yearly growth trends which tends to smooth out turbulent quarterly fluctuation, like it did at the depth of the 2008-2009 financial crisis.
But improvement has been uneven. Each piece of official data still seems to run on a different internal clock, with varying speeds of progress, or stagnation.
Mr Orlik groups them into three categories on an integrity scale, with the most reliable being trade-related numbers.
‘The trade data are quite reliable and quite detailed. I think it’s because China joined the WTO (World Trade Organization). They had to meet much higher standards on their trade data. The whole trade data system really improved a lots when they joined the WTO,’ he said.
On the other end of the scale are incredulous figures relating to labour such as wages and unemployment, and inflation and house prices. Their departure from reality has not escaped the watchful eyes of Chinese analysts.
Figures about house prices and unemployment remain politically sensitive in China, but Mr Orlik said: ‘It’s not that they have politicians come in and change the data. It is really a benign neglect. Basically, they don’t bother. They rely on very old sample sets. That’s kind of convenience for them because it shows very stable employment.’
Hence, the official figures reported a constant 4 per cent unemployment rate each year, all the way through the last decade, despite a significant surge in 2009 suggested by other relevant indicators.
Standing in-between is a grey area such as GDP, consumer price index and fixed-asset investment, where data is not fundamentally flawed but does not reflect the full reality.
The government isn’t making up the data,’ he said. ‘But it is not reflecting what is going (on). It misses a part of the picture.’
How so? ‘It is difficult to measure the Chinese economy because it is growing very fast, and there are new sectors contributing to the data,’ he said. ‘The problem with Chinese GDP is that the economy is actually bigger than the government reports. The problem is not because of political manipulation. The problem is because they have technical problems in collecting the data. The national statistics cannot keep up with what’s happening.’
For GDP, in particular, the national statisticians were surprised by their own field-work findings twice in recent years: first in 2004, when its national survey reported GDP to be 16.8 per cent bigger, and then in 2009, another national survey added 4.4 per cent to the GDP.
Mr Orlik went back to history and suggested that one of the reasons that China uses a magic number of 8 per cent GDP growth every year as its national target could be the result of Deng Xiaoping’s intention for its economy to quadruple the size from 1980 to 2000, 8 per cent being the compounded figure. The other reason is 8 per cent growth is what is needed to create the number of jobs to keep the nation fully employed.
Perhaps Deng Xiaoping got it right all those years ago.
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