• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

Even Goldman Says China Is Cooking The Books

Tyler Durden's picture




 

That China openly manipulates its economic data, especially around key political phase shifts, such as one communist regime taking over for another, is no secret. That China is also the marginal economic power (creating trillions in new loans and deposits each year) in a stagflating world, and as such must be represented by the media as growing at key inflection points (such as Q4 when Europe officially entered a double dip recession, and the US will report its first sub 1% GDP in years) as mysteriously reporting growth even without open monetary stimulus (something we have said the PBOC will not engage in due to fears of importing US, European and now Japanese inflation) is critical for preserving hope and faith in the future of the stock market, is also very well known. Which is why recent market optimism driven by "hope" from Alcoa that China is recovering and will avoid yet another hard landing, and Chinese reports of a surge in Exports last week, are very much suspect. But no longer is it just the blogosphere that is openly taking Chinese data to task - as Bloomberg reports, even the major banks: Goldman, UBS and ANZ - are now openly questioning the validity and credibility of the goalseek function resulting from C:\China\central_planning\economic_model.xls.

From Bloomberg:

China’s unexpected surge in exports last month renewed concern from analysts at Goldman Sachs Group Inc., UBS AG and Australia & New Zealand Banking Group Ltd. (ANZ) that statistics from the nation can be unreliable.

 

The 14.1 percent jump from a year earlier was the biggest positive surprise since March 2011, according to data compiled by Bloomberg. The increase didn’t match goods movements through ports and imports by trading partners according to UBS, while Goldman Sachs and Mizuho Securities Asia Ltd. cited a divergence from overseas orders in a manufacturing index.

 

Smaller trade gains could signal a less robust recovery from a seven-quarter slowdown just as Australian Treasurer Wayne Swan says the economic rebound is a sign of improving global demand. Accurate statistics from the world’s second-biggest economy are increasingly important for domestic and foreign investors and for China’s government, ANZ’s Liu Li-Gang says.

Too good to be true:

ANZ’s Liu and colleague Louis Lam published research last week that underscored doubts about the quality of China’s economic data. They found that quarterly GDP, industrial production, fixed-asset investment and inflation data published in percentage terms failed to conform to “Benford’s Law,” which holds that in any series of numbers certain patterns will be found only if the statistics are naturally generated.

As we have previously observed, even China has previously mocked its own data "fudgability":

Li Keqiang, who may succeed Wen Jiabao as premier in March, was quoted in 2007 as saying he watched figures on power, rail cargo and loans because gross domestic product numbers were “man-made.” Li’s remarks were in a U.S. diplomatic cable published by WikiLeaks in late 2010.

One reason for the "surge" in recent data may be the demand of the new Politburo to telegraph that all is well following the latest Congress which took place in November, and that the economy is once again picking up, even if in reality it isn't:

After China’s statistics bureau reported third-quarter GDP in October, Standard Chartered Plc analysts said the 7.4 percent increase was “too good to be true” when compared with the slowdown in electricity production and the readings of a manufacturing index, while London-based Capital Economics Ltd. said its own analysis indicated expansion of about 6.5 percent.

 

The median forecast for December exports in a Bloomberg survey of 40 economists was for a 5 percent gain, with the highest estimate at 9.2 percent, after November’s 2.9 percent growth. Goldman Sachs, ranked by Bloomberg as the most accurate forecaster for the indicator, projected a 7 percent rise.

 

The increase, which was the biggest since May, could indicate exporters’ rush to finish year-end orders and government pressure to report exports before the end of the year to reach the government’s 2012 target of 10 percent growth, Shen Jianguang, Mizuho’s Hong Kong-based chief Asia economist, said in a Jan. 10 note.

A possible explanation for how Chinese companies are cooking their export books comes from none other than Goldman:

“It is possible that local governments may have tried to boost exports data by either making round trips in special trade zones” or by exporting “earlier than otherwise in an attempt to improve the annual exports data,” Goldman Sachs’ Beijing- based economists Yu Song and Yin Zhang wrote the same day.

 

Rushed shipments and even faked exports to secure tax refunds may have contributed to the stronger growth data, according to Alistair Thornton and Ren Xianfang, Beijing-based analysts at IHS Inc.

 

Some trading companies are turning to transportation providers like Shenzhen Global Express Logistics Ltd. for help in shipping goods through so-called bonded zones to claim export tax rebates or charge higher import prices for goods without them physically leaving the country. Shenzhen Global offers customs clearing and other freight services including a “one-day tour,” Lin Yongtai, a manager with the company in the city bordering Hong Kong, said in a telephone interview.

 

For a fee of 1,000 yuan ($161) per vehicle per day, the company will drive trucks into warehouses in bonded zones, where cargo must clear customs, so that businesses can obtain a refund of value-added tax on the “export” of their products or boost sale prices for goods that carry the cachet of being imported.

 

“A poor villager can boast he has thousands of yuan of turnover every day, but people later discover he only has one bull -- he takes the bull out every morning and brings it back every evening,” Lin said. “The same applies to some parts of China’s foreign trade.

Of course, there is also the simple test of matching one country's exports to another one's imports (after all, it is a closed loop). Once more, it appears that China is literally pulling numbers out of thin air:

UBS economists led by Hong Kong-based Wang Tao pointed to a “quite obvious discrepancy” in the growth of China’s exports to Taiwan and South Korea and those economies’ reported imports from China in recent months, even as historically they have tracked each other well.

Finally, that China is openly making up numbers is no surprise: it will continue doing that until, like everywhere else, the discrepancy between perception and reality (usually manifested in the case of China by a lot of angry people breaking something or simply rioting) becomes too glaring for even the most optimistically inclined to ignore.

What is a surprise is that it is none other than the banks - the primary carriers of the status quo gene - who are implicitly pulling the rug out from beneath the economy that is supposed to once again, as in 2008 and 2009, provide the bridge from a contracting "here" to a growing "there."

The question is why?

Is this an attempt to undermine the Chinese leadership which has so far merely sought to grow the economy by fiscal stimuli, while avoiding monetary ones: i.e., finally get the PBOC involved in not only growing the money supply (if not the economy), but in joining the rest of the world's central banks in a race to debase? And if indeed this is the case, what happens when China begins growing its own local inflation in addition to importing everyone else's.

Or is it a way to force a drop in a market that hangs on to every piece of good news like a drowning meth addict clutching at the tiniest of straws, allowing the same "skepticism-inducing" banks to buy at cheaper prices?

Or, more likely, is this merely a red herring to be used as a scapegoat when the latest dead cat bounce, so optimistically telegraphed by every sell side strategist, fails to materialize once more? After all: when in doubt, blame it all on the upcoming debt ceiling fiasco, and now: made up Chinese data.

We are confident we will get the answer very soon.

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Sun, 01/13/2013 - 15:46 | 3149184 Room 101
Room 101's picture

In other news, the Ministry of Plenty is pleased to announce that the chocolate ration has been increased to 25 grams.

Sun, 01/13/2013 - 15:47 | 3149188 Publicus
Publicus's picture

China is printing money without the corresponding debt. Leading to economic recovery.

Sun, 01/13/2013 - 16:14 | 3149239 TheFourthStooge-ing
TheFourthStooge-ing's picture

No surprise here. Chinese citizenism citizens cook everything.

Best: stir fried financial statements with straw mushrooms and broccoli in spicy ginger sauce.

Next best: General Tso Cheatin'.

Sun, 01/13/2013 - 16:46 | 3149297 knukles
knukles's picture

That's the old spirit!
Accuse the Chinks of Cookin' the Books but Ignore Amurikuhs Finaglein'
Damned lyin' commie bastards.

Sun, 01/13/2013 - 17:34 | 3149359 lunaticfringe
lunaticfringe's picture

No shortage of American recipes. We are fucking professionals.

Sun, 01/13/2013 - 23:35 | 3149857 Dugald
Dugald's picture

No...Just Showing Face....easy as that!

Sun, 01/13/2013 - 17:22 | 3149347 butchee
butchee's picture

Cooking things sometimes kills the fecal coliform bacteria....other times the percentage of fecal material is mysteriously augmented.

 

Sun, 01/13/2013 - 16:43 | 3149293 LawsofPhysics
LawsofPhysics's picture

Ding, ding, ding!!!  We have a winner.  Every time the Fed prints, the American Taxpayer gets a bill and all the tenants of the U.S. slip further into debt slavery.  What is the interest up to now anyway?

Sun, 01/13/2013 - 18:06 | 3149402 espirit
espirit's picture

Pot calling the kettle black?

It takes a thief to catch a thief?

iCan think of others... G Sux as an authoritative source? Not!

Mon, 01/14/2013 - 12:36 | 3150802 monad
monad's picture

Its not called the syndicate anymore, honey. Its called nation building.

Sun, 01/13/2013 - 15:58 | 3149210 Uber Vandal
Uber Vandal's picture

In other news, the Ministry of Plenty is pleased to announce that the chocolate ration has been increased to 25 grams from 30 grams.

Fixed it for you.

Sun, 01/13/2013 - 18:01 | 3149395 toady
toady's picture

I fried a pound of walmart bacon this morning and noticed the slices were too thin, causing them to stick to the pan.

My curiosity was peaked, so I read the packaging. Sure enough, it was a 'new' American pound. 12 oz.

Sun, 01/13/2013 - 23:40 | 3149863 Dugald
Dugald's picture

12oz pound...now that is the funniest thing Iv'e seen to start off the NY, what's next 75cents to a dollar?

Sun, 01/13/2013 - 15:47 | 3149186 l1b3rty
l1b3rty's picture

No Even China? One-Child Policy China? Communist China? Goldman Sachs publishes some scandalous sh*t

http://silverliberationarmy.com

Free Silver @ SLA.

Sun, 01/13/2013 - 15:47 | 3149187 Seasmoke
Seasmoke's picture

a country that copies everything, is lying ????.......

Sun, 01/13/2013 - 15:53 | 3149202 bank guy in Brussels
bank guy in Brussels's picture

A Chinese official admitted they did learn about how to do fake gov't statistics by copying the US

As Chinese movie star Jackie Chan from Hong Kong says,

The US is even more corrupt than China - In fact the US is the most corrupt country in the world

http://www.scmp.com/news/hong-kong/article/1125813/jackie-chan-back-acti...

Sun, 01/13/2013 - 16:19 | 3149250 The Shootist
The Shootist's picture

China is by far the world's largest counterfeiter. Who wouldn't be proud of making fake shit in a sweatshop?

Sun, 01/13/2013 - 16:51 | 3149302 knukles
knukles's picture

fake sweatshops...

"and factory air conditioned air from our fully factory-equipped air conditioned factory"

Sun, 01/13/2013 - 16:38 | 3149280 LawsofPhysics
LawsofPhysics's picture

Riiiggghht.  We opened processing plant in China and when we went to install the processing tanks we had to pay an installation fee that was damn near 50% of the cost of the tanks.  This was nothing more than bribe money that must be paid to all those state officials who push the paperwork.

China has already nationalized everything, they are communist for christ sake.  America and China are heading to the same endpoint, this has been the plan all along.  In fact the central planners would like nothing more than a world where everyone works for chinese wages.  Sorry, I don't call that a pretty picture.

Sun, 01/13/2013 - 17:13 | 3149333 Winston Churchill
Winston Churchill's picture

Bit like an EPA enviromental impact fee in other words,or a building permit.

Monkey see,monkey do.

Sun, 01/13/2013 - 17:20 | 3149342 Winston Churchill
Winston Churchill's picture

Bit like an EPA enviromental impact fee in other words,or a building permit.

Monkey see,monkey do.

Sun, 01/13/2013 - 15:47 | 3149190 caimen garou
caimen garou's picture

thats the pot calling the kettle black!

Sun, 01/13/2013 - 17:09 | 3149329 Bam_Man
Bam_Man's picture

You mean "The wok corring the kettle brack".

Sun, 01/13/2013 - 18:29 | 3149431 TheFourthStooge-ing
TheFourthStooge-ing's picture

Ah, US citizens, who play attrition games, keep coming with the same overused trick.

What the meaning is should be meant: "sounds like wok calling the cooking marmit black".

Sun, 01/13/2013 - 18:30 | 3149439 Pareto
Pareto's picture

+ 100 for the laugh for sure.

Sun, 01/13/2013 - 15:51 | 3149195 Super Broccoli
Super Broccoli's picture

GS complains about someone cooking the books ? LOL

Sun, 01/13/2013 - 16:01 | 3149216 Albertarocks
Albertarocks's picture

I don't think it was a complaint as much as a statement of admiring approval.

Sun, 01/13/2013 - 16:17 | 3149245 Silverhog
Silverhog's picture

Wish somebody would shove a red hot pepper egg roll up Blankfein's ass.

Sun, 01/13/2013 - 16:40 | 3149282 TheFourthStooge-ing
TheFourthStooge-ing's picture

Goldman Sachs: the Gordon Ramsay of book cooking.

"What the fuck kind of cook do you think you are?! Are you having a laugh? You've got your head up your ass, don't you?

Give up you wankah! You fucking can't cook for shit!"

http://www.youtube.com/watch?v=GOvjSW9471A

Sun, 01/13/2013 - 16:19 | 3149251 Deacon Frost
Deacon Frost's picture

That’s right Goldman Sachs ought to know cooking the books when they see it.

That’s the audacity of control and power.

 

Sun, 01/13/2013 - 15:52 | 3149200 Rustysilver
Rustysilver's picture

And in other news from GS: $hit smells.

Sun, 01/13/2013 - 16:31 | 3149271 unrulian
unrulian's picture

There's no way GS told the truth about $hit

Sun, 01/13/2013 - 15:53 | 3149201 q99x2
q99x2's picture

Hard to imagine that crooks (GS) say that China crooks are cooking the books. This has the truth value of (Crooks2-Tyler posting) = take if for what it's worth.

Sun, 01/13/2013 - 15:53 | 3149203 Snakeeyes
Snakeeyes's picture

No $hit Sherlock. We have know that forever.

And the US is cooking its books too.

Sun, 01/13/2013 - 16:06 | 3149227 FinalCollapse
FinalCollapse's picture

That's why the global economy in aggregate exports products worth hundreds of billions of dollars to Mars. Our governments started to send space missions to Mars in search of life.

Sun, 01/13/2013 - 15:55 | 3149204 buzzsaw99
buzzsaw99's picture

pot - kettle

Sun, 01/13/2013 - 16:00 | 3149209 FinalCollapse
FinalCollapse's picture

Just like we had the Canadian train filled with biofuels cross the US border over 20 times without unloading the cargo to claim the EPA credits, we may have the same ship departing Chinese port multiple times without unloading. It's a winner: owners get the Chinese subsidy multiple times, the shipping company gets paid, the managers get generous 'allowance', and Keneysians get wet dreams. Winner!

 

Sun, 01/13/2013 - 16:40 | 3149284 LawsofPhysics
LawsofPhysics's picture

Yes, we are at the point where the real owners have direct access to the printing presses of the world.  Scary/interesting times.  This will not end well when the supply lines break.

Sun, 01/13/2013 - 18:32 | 3149442 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Just like we had the Canadian train filled with biofuels cross the US border over 20 times without unloading the cargo to claim the EPA credits, we may have the same ship departing Chinese port multiple times without unloading.

Hmmmm, has Warren Buffett been investing in Chinese shipping companies.

Sun, 01/13/2013 - 16:02 | 3149218 jldpc
jldpc's picture

Move on,  move on. Nothing new here. They are just copying us. Does anyone here believe US government statistics. Does anyone believe the Barter, or Cash payment w/o taxes economy here is included? Brain fart! It is real, it is large; it is totally ignored in US government statistics. So their accuracy is off by at leat the amount of the Chinese fudge factor. Move on. Move on.

Sun, 01/13/2013 - 16:03 | 3149220 TheMayor
Sun, 01/13/2013 - 16:13 | 3149236 topshelfstuff
topshelfstuff's picture

somebody's mad

http://www.marketoracle.co.uk/Article38238.html

Comex Pressure Point, The Coming Isolation Of The US Dollar

 

A Paradigm Shift is taking place, and the ASEAN-China summit gave proof positive in a seminal event of the vast changes in progress. The United States just suffered its worst humiliation ever as a nation on the Eastern global stage. It was exceeded only by the humiliation for a US president personally. The story went uncovered by the lapdog inept US press. The late November Asian summit meeting held in Phnom Penh included 15 Asian nations, which represent half the world's population. They decided to form a Regional Comprehensive Economic Partnership that excludes the United States

Sun, 01/13/2013 - 16:29 | 3149265 LawsofPhysics
LawsofPhysics's picture

Indeed.  looking forward to recieving gold and silver in exchange for my soybeans and resource access to the land our co-op controls.

Bring it, it will be a great decade to be in agriculture.  Need to invest in more pecan trees, asians can't get enough of them, even near $100 per pound.

Sun, 01/13/2013 - 16:18 | 3149247 caShOnlY
caShOnlY's picture

 one shit flinging monkey flinging shit at another shit flinging monkey

Sun, 01/13/2013 - 16:30 | 3149268 W74
W74's picture

So you've been to Baltimore I see.

Sun, 01/13/2013 - 16:20 | 3149253 bentaxle
bentaxle's picture

.....Said the muppet f....leecer to the currency manipulator.....

Sun, 01/13/2013 - 16:31 | 3149261 LawsofPhysics
LawsofPhysics's picture

EVERYONE  on the planet is cooking their books. That is what is making this one of the most "interesting" times to be alive.

Never before in the history of the world has fraud been the status quo of the earth.

Have the bankers won?  Time will tell, but from where I sit I see a serious disruption in the supply lines if the drought conditions persist in the northern hemisphere.

Hedge accordingly.

Sun, 01/13/2013 - 16:34 | 3149276 Goatboy
Goatboy's picture

Weak are sometimes caught the rest we call successful. Few exceptions prove the rule.

Sun, 01/13/2013 - 17:13 | 3149336 caShOnlY
caShOnlY's picture

Have the bankers won?  

... not yet, your still breathing. 

Sun, 01/13/2013 - 23:40 | 3149865 thefedisscam
thefedisscam's picture

EXACTLY!! Why the heck the U.S. of A can cook their books, but not China?? Pathetic!

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