Playing the China Economic Data Game
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Playing the China Economic Data Game

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China’s monthly data releases are watched more closely than those of many other countries. The latest data (for April 2013) have proven to be no different.

On the one hand it is natural for analysts and commentators to pour over the data for the world’s second largest economy, and yet the reliability of some or all of the data can often be called into question – leaving research arms and analyst teams struggling, sometimes coming up with their own measures, and sometimes cherry-picking the data from China’s official releases. What’s more, the lack of a respected measure for unemployment, and problems with rural output indicators automatically increases the importance of the other data points.

Whether it is one of China’s three Purchasing Manager’s Indices (PMIs), China’s trade data, Inflation (either the consumer price index – CPI, or Producer Price Index – PPI), monthly RMB lending by the banks – now superseded by the Social Financing measure (which includes several other “non-bank” financing channels), or the numbers for industrial production (IP) or fixed-asset investment (FAI), there is usually “something for everyone.”

April provides a good example of this phenomenon.  The two manufacturing PMIs and the services PMI all showed expansion, yet also were weaker than previous months (and forecasts). Social financing measures showed credit creation easing from nearly 2.5 trillion RMB in March to just over 1.7trillion in April. Those worrying about debt build-ups may see relief, but 1.7 trillion RMB is still a high number (higher than all but two monthly totals for 2012), and the total for the first four months of 2013 is already 7.7 trillion RMB even as the economy seems to be weakening.  All this credit creation may suggest a pick-up is imminent, but whether further investment or capacity expansion is desirable is yet another question, as is the amount of risk involved in some of these “shadow” financing channels.

Year-on-year CPI for April was up 2.4%, lower than the government’s target for the year, but higher than the March figure. Much of the increase was in vegetable costs, whilst non-food items remained subdued. The PPI remained negative, showing that producer prices fell for a 14th straight month, suggesting that the overcapacity across many sectors which has afflicted China since at least the global financial crisis began is ongoing (and has prompted talk of an imminent plan to deal with it).Falling inflation could of course give the government room to ease policy and support growth, yet the slight up-tick in the CPI figure from March to April could be a worrying sign.

Trade data has garnered a lot of attention over the last couple of months, and anomalies in the data leave severe doubts about the picture being painted – in particular large discrepancies between Chinese figures for exports to Hong Kong and Hong Kong’s figures  (usually considered more reliable) for imports from China. The widely acknowledged explanation is that China’s 14.7% increase for exports actually reflects individuals and companies using false export invoices to bring capital back on-shore. The State Administration of Foreign Exchange (SAFE), responsible for dealing with China’s currency reserves under the People’s Bank of China, highlighted such suspicions when it announced a crack down on such activities last week.

Nonetheless, China’s data, when taken together with several previous months, does provide at least some measure of what is going on in the economy, even if single data points can be called into question. The current picture is of an economy receiving heavy injections of financing, but which has so far failed to show much signs of improvement or the feared inflation.  China’s GDP data is published every quarter, not every month, so we must wait until July to see if China is still slowing or has begun to pick up again.  Then again, there are even doubts about the GDP data itself, and from one important person in particular.

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7
Liang1a
May 16, 2013 at 14:04

jaques666 wrote:

May 15, 2013 at 9:41 pm

LIang1a, why do you write that "advancement of technologies can only be done by the government", this seems totally spurious. Most of China's most innovative tech firms have little or nothing to do with the government. Alibaba, ZTE, Huawei.

The government is normally very bad at doing technology, other than perhaps guiding the academic side of things. Tencent, Sina, Tudou, Youku, are much better. Lenovo is not exactly innovative but again, nothing to do with the government.

Your statement sounds like propaganda, as usual with propaganda, I suspect there is very little good thinking or logic to back it up.

————————

I was thinking what I wrote might come out sounding wrong.  And you have interpreted it as I feared it might have been.  I do not mean no private companies or individual can develop high technologies.  I meant large complex technologies can only be done by governments such as space technologies; and especially the building of great universities.  In other words, the government would do the fundamental scientific research to laid the foundation for technological advancement.  Private companies or individual SOE will do the product development such as building cars or innovating processor chips, etc.

Lenovo as far as I know is an SOE.  At least the state is the majority owner of it.

jaques666
May 15, 2013 at 21:41

LIang1a, why do you write that "advancement of technologies can only be done by the government", this seems totally spurious. Most of China's most innovative tech firms have little or nothing to do with the government. Alibaba, ZTE, Huawei.

The government is normally very bad at doing technology, other than perhaps guiding the academic side of things. Tencent, Sina, Tudou, Youku, are much better. Lenovo is not exactly innovative but again, nothing to do with the government.

Your statement sounds like propaganda, as usual with propaganda, I suspect there is very little good thinking or logic to back it up.

Liang1a
May 15, 2013 at 13:23

@ Han:

Are you complaining I'm disrespectful to People's Daily or to you?

Liang1a
May 15, 2013 at 13:19

Han Hongjun wrote:

May 15, 2013 at 2:30 am

Please be respectful and refrain from reposting People's Daily articles here. If we want to read the People's Daily, we will go to that website.

——————————–

Are you a monitor of The Diplomat?  As to reposting People's Daily article, you are wrong to say I'd reposted any PD article here.  I had given the link to the original article from which I took the numbers as a reference.  I have no idea why you are so upset.  PD would obviously be grateful to me for making its article popular.  And PD also cannot legally charge me for violating its copyright because I did not even make a single quote verbatim.  My guess is you don't like to see PD popularized.  That's your problem, not mine or PD's.

Han Hongjun
May 15, 2013 at 02:30

Please be respectful and refrain from reposting People's Daily articles here. If we want to read the People's Daily, we will go to that website.

Liang1a
May 14, 2013 at 10:55

China's hopes of achieving a fully grown economy depends on the advancement of technologies, the urbanization of the rural residents and the energy self-sufficiency. China's domestic economy should be based on providing goods and services to the Chinese consumers. Especially, the service sector should be emphasized. The advancement of technolgies can only be done by the government. Also the energy self-sufficiency must rely on the government projects. But the urbanization of the rural residents and the expansion of services and low and mid-tech production of goods for domestic consumption can be done by small enterprises selling to the local markets. And this is the sector that can benefit most from the shadow banking. I hope the shadow banking will not become usurious and harmful and so impede the economic development. But if the money can be made available at reasonable rates to fund the growth of the domestic economy and especially in providing funds needed by the newly urbanized rural residents, then this would be a very positive factor for the continued growth of the Chinese domestic economy especially in helping achieve the urbanization of the rural residents.

Liang1a
May 14, 2013 at 10:27

It has been reported that China's "shadow banking" has reached some 21 trillion yuan in 2012 which amounted to some 39% of China's 2012 GDP of some 52 trillion yuan.[1]  Extrapolating this, one might expect such a huge amount of shadow banking to generate trillions of yuan of goods and services.  In the past and currently, the Chinese government mistakenly thought China's ecnomic strategic opportunity lies in exporting to foreign countries.  Therefore, it had little interest to increase domestic economic activities.  That is to say, the Chinese government was more interested in making dollars than in increasing the standard of living of the Chinese people.  In fact, many Chinese officials bemoan the increasing high wages of the Chinese workers because it is bringing an end to the export of labor intensive products which is predicated on cheap labor.  And with low wages the Chinese workers are not high spending consumers.  Furthermore, the exports oriented Chinese policies had channeled loans in regular banks to export oriented enterprises.  Therefore, enterprises for domestic economy have been starved of funds.  And with the exports stalling and little domestic economy, China's GDP growth had declined.  GDP growth due to exports is probably less than 1% of GDP.

While the government condemns shadow banking perhaps because it has the potential of usurious abuses, at least the Chinese small enterprises are getting the loans they need to fund expansion of their businesses.  Since the government is clueless in expanding the domestic economy, it is up to the Chinese people themselves to develop China's economy.  With such a huge amount of shadow banking which is estimated to increase at the astounding rate of some 75% over the last 2 years, I would guess China's economy is also being expanded at a proportionate rate.  And if the amount in the shadow banking system continues to grow then it would mean loans are being provided to small domestic businesses to continue the domestic expansion.  Given the Chinese government's inability to expand the domestic economy, the rapid expansion of the shadow banking is the only hope for the Chinese domestic economy to grow.

I've said that Chinese government's economic policy had failed.  I've also said that if the Chinese economy is to continue to grow then it is up to the Chinese people themselves to expand the Chinese economy by expanding the goods and services and especially services they can provide to each other.  Therefore, even as China's export growth is shrinking to less than 1% of GDP, China's domestic economy may hopefully expand more than 7% per year now that loans are provided to them through the shadow banking system.  This will then keep the Chinese economy growing at a sufficient rate to double the GDP within 10 years.  And the good thing is shadow banking probably fund growth in the domestic goods and services so that no energy and resources are wasted to make goods for exports.[1]

It has been estimated that each yuan of increase in GDP requires 4 yuan of investment.  Therefore, if China is to achieve anothe 250 trillion yuan of GDP growth then it would need some 1,000 trillion yuan of investment.  If China's regular banks cannot or will lend to the domestic enterprises then it is up to the shadow banks to provide the major part of the 1,000 trillion yuan of investment over the next 30 years.  Hopefully, with the large amount of saving made by the middle and lower classes enough loans can be made to make up 1,000 trillion yuan over the next 30 years.  Unfortunately, China's upper class with their huge amounts of saving have been used to buy housings as the only way to store their wealth.  But such housing puchases don't in the end produce any beneficial economic activities and only created the danger of a housing bubble collapse.  In contrast the shadow banking hopefully will be providing loans to fund enterprises to produce goods and services to raise the standard of living of the Chinese people.

[1] China's shadow banking.

http://english.peopledaily.com.cn/90778/8242214.html

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