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China's GDP data: Reasons to keep on believing

China's GDP data: Reasons to keep on believing
Published 4 Nov 2015   Follow @LeonBerkelmans

I haven't been a close observer of the Chinese economy for long – maybe four or five years — but I haven't seen this level of scepticism of Chinese GDP data before. Perhaps naively, I'm probably one of the more credulous observers of the data, although some of the things that have passed by my desk recently have made me shift uncomfortably in my chair. For example, Christopher Balding of Peking University has been digging into the data, and promises more.

So, why do I usually cast a believing eye over the data?

Well, I think the work of Carsten Holz, from the Hong Kong University of Science and Technology, is particularly good. In a thorough review of Chinese data, he concluded that 'the supposed evidence for GDP data falsification is not compelling.' Statistical techniques designed to uncover manipulation were unable to do so. The same tests, by the way, were able to find manipulation in Greek data!

But Holz's work has its critics. Harry Wu, of The Conference Board, has published a take-down of the stats arguing that GDP growth data has been biased upwards for decades. But then there is a recent 240 page detailed tome by Dan Rosen and Beibei Bao of Rhodium Group that suggests the level of GDP is at least 10% understated. (Disclaimer: I can't claim to have read every word in the book, but the parts I have flicked through seem convincing, which is unsurprising given the authors.)

Head spinning yet? Mine too. [fold]

But let's keep going. Perhaps we can look at how companies are performing in China. First, looking at the operations of foreign companies in China, there are some terrible stories and some terrific ones. On the negative side of the ledger, Caterpillar, Hyundai and Ericsson . On the other hand, things are going well for Apple, Nike and McDonald's. Domestically, profits of industrial companies are looking sick, but on the other hand Alibaba (which is listed in New York) has had a cool 32% rise in second-quarter revenue. 

Well, that didn't really clear anything up.

Steve Grenville suggested we remain agnostic about the quarter to quarter GDP numbers. For the sake of our sanity, perhaps he is right.

I will leave this meandering post with two thoughts. First, I've been told by people who know far more than I that there is no second set of books. If the Chinese are lying to us, they are also lying to themselves. And second, below is a graph from Deutsche Bank. If China follows other Asian economies, then the Chinese growth story is only just getting started. It's enough to send someone to Justin Lin levels of optimism.

Postscript: this graph uses Penn World Tables data. Angus Deaton, the recent Nobel Laurette, offered user warnings about this data in his Lionel Robbins lectures last year. Those lectures are well worth a listen.

Photo courtesy of Flickr user V.T. Polywoda.

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