Pacific Money

Playing the China Economic Data Game

The current picture is of a country receiving heavy injections of financing, but is the economy picking up steam?

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(either the consumer price index – CPI, or Producer Price Index – PPI), monthly RMB lending by the banks – now superseded by the Social Financing measure (which includes several other “non-bank” financing channels), or the numbers for industrial production (IP) or fixed-asset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.

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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.