On April 16, Beijing's National Bureau of Statistics announced that the Chinese economy grew 6.1% in the first quarter of this year. Analysts around the world hailed the number as"encouraging" and said it was a sign that the worst had passed for China. "The recovery has begun,"declared Ken Peng of Citigroup. Not so fast, Mr. Peng. In reality, it will take months to determine what really happened during the first three months of this year, but the gross domestic product figure appears much too high when we look at other statistics for the same period. In short, Chinese officials, after a brief flirtation with honesty in the beginning of last year, are evidently going back to fakery when it comes to the production of economic statistics. As an initial matter, it would help if Beijing's numbers were internally consistent. At a time when China was supposedly chalking up robust growth, other indicators were pointing downward. Exports, for instance, were collapsing. They dropped 17.5% in January, 25.7% in February and 17.1% in March. Consumer spending? Beijing said retail sales were up 15% in the first quarter of this year. Even if that is true, these sales are by no means reflective of consumption's effect on the economy. First, government voucher programs, which increased sales, were designed to move previously unsold inventory and therefore had relatively little effect on last quarter's GDP. Second, imports fell during that period. Some of that decline resulted from manufacturers importing fewer raw materials for exports. Yet imports dropped more than exports, a sure sign that China's shoppers were buying markedly fewer foreign goods and a possible indication they were not buying much at all. Third, declines in the Consumer Price Index of 1.6% in February and 1.2% in March reveal fundamental weakness in consumer demand. And on top of this, Beijing has not released key household expenditure statistics, thereby casting doubt on its recent contentions of strong retail sales. So consumption, if it grew at all during the quarter, probably had only a marginal positive effect. The third leg of the Chinese economy is investment. Last November, the State Council, China's cabinet, announced a $586 billion spending plan to lift faltering growth. Pursuant to the program, the central government, state enterprises and state banks have been mobilized. So far, massive amounts of cash have been forced into the state economy, especially by the banks. Unfortunately, some of the state bank cash has ended up in domestic stock markets, where it had little effect on first quarter GDP. Of course, most of the spending has fueled fixed-asset investment, which Beijing said jumped an impressive 28.8% during the quarter. We shouldn't be surprised that increased state spending makes announced GDP look robust. The National Bureau of Statistics has yet to develop adequate sampling techniques to measure the private sector, which by all accounts is performing worse than the state component of the economy these days. Because non-state businesses comprise about half of the non-farm economy, Beijing's GDP statistics are deficient. Considering everything, vigorous government spending can only have a limited effect on overall output. Rock Jin, chief economist of Sinolink Securities in Beijing, estimates that only 2.4 % of the announced growth resulted from stimulus spending. "The decline of regular economic growth is continuing," Jin noted. That conclusion makes sense because, during the first quarter, electricity consumption was down, foreign direct investment was down, producer prices were lower and government revenue was off. From all indications, unemployment was up. So how could the economy at the same time grow by over 6%? And if the economy is really recovering, why is there talk of the need for a second stimulus package in Beijing? Premier Wen Jiabao, Beijing's point man on the economy, unveiled new GDP-boosting measures on April 16, and the capital is abuzzthat they will soon be followed by a second massive spending plan. At some point later this year, it is inevitable that ever-larger doses of Beijing's stimulus will translate into state-led growth. But, in all probability, that did not happen in the recently concluded quarter. Chinese statisticians, working inside a vast public relations machine, are just making up numbers at the present moment. The Chinese, however, are not buying their government's storyline. In the last quarter of 2008, when Beijing announced growth of 6.8%, China's citizens and businesses evaded strict currency controls and smuggled out somewhere between $126 billion to $240 billion. The illicit activity continued at about the same pace last quarter, judging from capital flows, such as a Mainland rush into the Hong Kong dollar, and from a surprising slowdown in the accumulation of Beijing's foreign currency reserves, best explained by hot money exiting China. Chinese tourists also participated in the dash out of their country by snapping up, among other things, real estate in America and gold in Hong Kong. Statisticians in the Chinese capital can easily deceive foreigners with rosy GDP statistics, but they are not fooling their own people. Gordon G. Chang is the author of The Coming Collapse of China. He writes a biweekly column for Forbes.
Commentary
Another Chinese Fib: 6.1% Growth
Gordon G. Chang, 04.22.09, 12:01 AM EDTOn the economy, Beijing fakes the facts.
Friday, 24 April 2009
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