China’s ‘Man-Made’ Data: It’s A Fantasy That No One Should Believe

When China reported that its economy grew 7% in Q2 – spot-on Beijing’s target – virtually no one believed it.

The veracity of the country’s economic data has long been the subject of debate and when FT called out the country’s National Bureau of Statistics for employing what we called “deficient deflator math” on the way to understating inflation and overstating output, China’s statistics bureau responded, saying that although there was “room for improvement,” the deflator wasn’t underestimated, GDP growth wasn’t overstated, and “both reflect the real situation.”

One could certainly be forgiven for insisting that the NBS is simply lying, because after all, the “real situation” looks like this:

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Given the above, it should come as no surprise that some analysts believe the actual rate of growth in China is closer to zero than it is to 7%. Here’s Reuters:

China’s economy is growing only half as fast as official data shows, or maybe even slower, according to foreign investors and analysts who increasingly challenge how the world’s second largest economy can be measured so swiftly and precisely.


But perhaps the biggest question is how a developing country of 1.4 billion people can publish its quarterly gross domestic product (GDP) statistics weeks before first drafts from developed economies like the United States, the euro zone or Britain, and then barely revise them later.


“We think the numbers are fantasy,” said Erik Britton of Fathom Consulting, a London-based independent research firm and one of the more vocal critics of official Chinese data. “There is no way those numbers are even close to the truth.”


The uncanny official calm in China GDP data may well be contributing to sceptics’ exit from Chinese assets just as the authorities struggle to manage a volatile stock market.


Fathom, which decided last year to stop publishing forecasts of the official GDP release and instead publish what it thinks is really happening, reckons growth will be 2.8 percent this year, slowing to just 1.0 percent next year.


Li Keqiang, now Chinese Premier, was cited in leaked U.S. diplomatic cables years ago from when he was Communist Party head in Liaoning province calling GDP figures “man-made” and unreliable. This remains a buttress for widespread scepticism.


Fathom publishes a simple indicator based on three variables that Li said at the time he watched for a better view of how his local economy, and by extension the national one, was faring: electricity consumption, rail cargo volume, and bank lending.

That implies a growth rate of 3.2 percent, and shows a significant decoupling from the official rate since late 2013 based on a plunge in rail freight volumes and below-trend growth in electricity production.

“Clearly nobody believes the data,” said Sushil Wadhwani, a former Bank of England Monetary Policy Committee member and founder of Wadhwani Asset Management LLP.

Wadhwani says he also looks at various proxies of China’s growth rate, which he deems are “pretty unreliable” as well and which suggest anywhere from 1.5 percent to about 5 percent growth.


“I truly don’t know where we are in that range”, he said.

Neither do we, but we suspect it’s closer to the low end and indeed, if the 35% rise in NPLs cited last week by Shang Fulin, chairman of China Banking Regulatory Commission, is any indication, things are getting a lot worse under the hood as the slumping economy causes loans to the manufacturing sector to sour at an unprecedented rate.