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China's $1 Trillion GDP Lie

Tyler Durden's picture




 

From goal-seeked GDP, manipulated inflation, liquidity-flow-exaggerated trade data, and hidden (and divergent) PMI details, the question of the unreliability of Chinese data is not a new one. However, anecdotes aside, a new study from Peking University finds, conservatively, correcting for housing price inflation in the Chinese CPI data adds approximately 1% to annual consumer price inflation in China, reducing real GDP by 8-12% or more than $1 trillion.

 

How Badly Flawed Is Chinese Economic Data? The Opening Bid is $1 Trillion

Baseline Chinese economic data is unreliable. Taking published National Bureau of Statistics China data on the components of consumer price inflation, I attempt to reconcile the official data to third party data. Three problems are apparent in official NBSC data on inflation.

First, the base data on housing price inflation is manipulated. According to the NBSC, urban private housing occupants enjoyed a total price increase of only 6% between 2000 and 2011.

 

Second, while renters faced cumulative price increases in excess of 50% during the same period, the NBSC classifies most Chinese households has private housing occupants making them subject to the significantly lower inflation rate.

 

Third, despite beginning in the year 2000 with nearly two-thirds of Chinese households in rural areas, the NSBC applies a straight 80/20 urban/rural private housing weighting throughout our time sample. This further skews the accuracy of the final data.

To correct for these manipulative practices, I use third party and related NBSC data to better estimate the change in consumer prices in China between 2000 and 2011.

I find that using conservative assumptions about price increases the annual CPI in China by approximately 1%.

This reduces real Chinese GDP by 8-12% or more than $1 trillion in PPP terms.

 

For example...

From 2000 to 2011, according to official statistics, M2 money grew more than six fold, nominal GDP nearly fivefold, and real GDP three fold, but the price of private housing by only 8%.

 

 

If we focus on nothing other than the growth of official real GDP, it seems implausible that the price index of private housing would be falling so significantly relative to output. If we include the nearly five-fold increase in nominal GDP and six fold growth in M2 money into the analysis, it again strains credibility that the price of private housing would remain nearly unchanged for eleven years.

Key Facts

  • According to the National Bureau of Statistics China (NBSC), the price of private housing in China rose by a total of 8.14% between 2000 and 2011 and only 5.99% in urban areas, where Chinese were moving to in large numbers.
  • According to the NBSC, the annual price of private housing in rural areas grew at 1.67%, more than three times faster than prices in urban areas at 0.53%.
  • According to the NBSC, the price increase of renting outpaced the change in the price of private housing by nearly 50%, making it significantly more advantageous to purchase an apartment between 2000 and 2011 in China.
  • According to the NBSC, only 12% of Chinese households are renters, skewing inflation data.
  • To calculate the total private housing price change, the NBSC utilizes a straight 80% weighting of the urban population and a 20% weighting of the rural population despite the fact that in 2000 nearly two-thirds of Chinese households were rural and only rose to 51% urban in 2011.
  • According to the NBSC, rural home values rose by 249% between 2000 and 2011 for a compounded annual growth rate of 8.65%.
  • According to the third party data, from the first quarter of 2000 to the first quarter of 2010, the nominal value of apartments in urban areas in China rose nearly threefold.
  • When using third party data and reconciling NBSC data in place of official housing inflation data, annual Chinese CPI increases by approximately 1% annually.
  • Incorporating this change in CPI into real GDP calculations reduces total real GDP by a mid-range estimate of 8-12% or $1 trillion in PPP.
  • Other significant discrepancies exist that will likely increase the size of the needed restatement of total real GDP.
  • According to NBSC data, the food component of the CPI in China was responsible for 99% of inflation between 2003 and 2011. This implies that the NBSC is claiming that the only prices to rise in China between 2003 and 2011 were food prices.

Given what we obviously locate, it seems likely that much larger revisions to Chinese real GDP and other economic data is needed to produce more reliable statistics.

 

Full Report below:

 

How Badly Flawed is Chinese Economic Data - $1 Trillion and Over Hit to GDP

 

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