Earlier today we got a look [7] at fixed asset investment in China and the picture was most assuredly not pretty. Indeed, FAI growth was the weakest in 15 years, underscoring the degree to which China’s 7% headline GDP prints are at best a deficient deflator-assisted myth and at worst a figment of Xi’s imagination.
Of course the idea that China fabricates its GDP data isn’t new. In fact, it’s probably not even accurate to call it a “badly kept secret” anymore as it’s become so ubiquitous that calling it out isn’t even considered bad form and indeed some of the exaggeration baked into the numbers might not be the result of willful manipulation but rather simply the inevitable byproduct of using inadequate statistical methodologies [8] to measure the deflator during times of plunging commodity prices.
In any event, the question is not if China’s GDP data is contrived but rather to what extent and on that point most people are understandably clueless because after all, China’s economy is somewhat of a black box and in the absence of reliable data, it’s sometimes easier to estimate what’s going on by looking at how things are going in the economies which depend on Chinese demand and indeed, that’s why quite a few people are so worried.
In an effort to get a read on just how likely it is that the numbers coming out of China’s NBS are fictitious, WSJ surveyed 64 US economists. Here’s what they found out [9]:
China says its economy grew 7% in the second quarter. Economists in the U.S. don’t buy it.
More than 96% of respondents to the latest Wall Street Journal survey of 64 economists–not all of whom answered every question–said China’s gross-domestic-product estimates don’t accurately reflect the state of the world’s second-biggest economy.
“Official data are manufactured to fit the government’s narrative,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.
In the Journal’s survey, none of the respondents said China’s GDP was expanding 7% or more.
More than half estimated annual growth in 2015 at somewhere in the 5% to 7% range. About a third estimated growth would come in from 3% to 5%. Forecasts for growth next year covered a wide range, from as low as 2% to above 7%.
Needless to say, US economists do not have [10] the best track record when it comes to making projections so ironically, the fact that 100% of them think China's economy is not growing at a 7% or better clip might be the only piece of evidence we've seen to date to suggest that Beijing is telling the truth and furthermore, after officially jumping the shark [11] with double-adjusted data, the US is really in no position to call China out for fabricated numbers.
That said, China is in the same situation with its economic data that it's in with its equity market plunge protection effort. That is, even in a centrally planned world, Beijing's particular brand of fudging the numbers and stacking the deck falls outside the bounds of manipulated market decorum, and when you're the engine for global demand and trade, being completely opaque about what's going on introduces an extra layer of uncertainty into an already confused policy normalization attempt at the Eccles Building and if the last several weeks are any indication, markets may be in for a volatile ride next week if Chinese markets tip back into turmoil and Janet Yellen eschews a "hawkish hold [12]" for a "policy error."
