March 20, 2019

China Economic Update – March 2019

Add it up: the uncertainty around China’s economic data

  • The accuracy of Chinese statistics – particularly for key indicators such as economic growth – is widely scrutinised. These data tend to exhibit low levels of volatility, compared with other global economies, which some critics suggest point to their inaccuracy or even fabrication. Others suggest that this merely means the data is smoothed and that the underlying trend is credible. In the past, the modest size of its economy has meant that the validity of Chinese data has been of little importance, however since China is now the largest economy, and one critically integrated into global markets, its economic performance is closely watched and influences global asset markets.
  • Uncertainty around the accuracy of Chinese official data has inspired a range of alternative measures, often constructed from lower profile data series that are thought to be less subject to errors or manipulation. This includes the Li Keqiang Index, Bloomberg’s Real Activity Index and Capital Economics’ China Activity Proxy, along with academic studies using business revenue and margins as well as taxation. NAB Economics also use a simple model based on credit, growth of major trading partners and China’s real exchange rate.
  • The smoothness of China’s official economic growth raises some justifiable doubts around the accuracy of the country’s growth data. This is particularly the case when alternative measures (including our model) generally suggest that the economy slowed significantly in late 2015-early 2016 before subsequently recovering. Our simple model has its limitations like the other alternative measures – including the under representation of services. However it suggests that growth near the rates that China officially reports is not entirely unreasonable.
  • There are a wide range of views around the validity of Chinese economic growth data, along with a range of potential alternative indicators. Ultimately all of these measures have some shortfalls and cannot be independently validated. This means that we can’t be certain that an alternative measure provides a more accurate picture of China’s economy than official statistics.
  • Given China’s significance to the global economy, a greater degree of transparency around China’s national accounts (and other data) would be preferable.

For further details, please see the China Economic Update – March 2019