Thursday, August 6, 2009

More on Dubious News Versus Cheery Data Out of China

Yves Smith If you think US economic data leaves a lot to be desired, just remember that it looks stellar in comparison to what comes out of China. The latest China fun facts versus relentlessly upbeat official figures roundup comes with the help of reader Michael. First is that China has been reporting decent growth, with the latest release clocking in at 7.9%. That is an interesting figure in and of itself, since the government has said that anything below 8% would result in an inability to absorb new workers, meaning rising unemployment. And some a bit closer to the situation, like Marc Faber in Singapore, contend that China is growing only at 2%. Other sightings seem to bear out the Faber view. First is that China is warning of a "grave" employment outlook: China Tuesday warned of a "grave" situation in the jobs market with millions of graduates and migrant workers yet to find work as companies continue to struggle with the effects of the global slump... "China's current employment situation is still grave and the pressure for job creation remains large," said Wang Yadong, a senior official at the Ministry of Human Resources and Social Security's employment section. "To make things worse, the impact of the international financial crisis has not yet bottomed out and a lot of companies are still facing business difficulties, posing big unemployment risks," he told reporters. Wang said around 147 million migrant workers had moved to cities for jobs by June but more than four million had yet to find one. Moreover, three million university graduates, including those who had left last year, were still unemployed, he said. China's urban registered unemployment rate stood at 4.3 percent in the second quarter, unchanged from the first three months and up from 4.2 percent at the end of 2008, Wang said. Wang added that the government aimed to keep the rate below 4.6 percent this year. However, the actual jobless figure may be much bigger than the official rate, which does not include migrant workers and university graduates. Then we have this report, of a precipitous fall in electricity use by mid-sized and smaller businesses, from Cajing: First-half electricity use by small and medium-sized enterprises fell almost 50 percent year-on-year, as these companies were more exposed to the economic downturn, the National Bureau of Statistics said on August 3. SMEs saw power consumption plunge 48.9 percent year-on-year, against a 5.9 percent industry-wide drop. UBS Securities chief economist Wang Tao said SMEs were the first to be hit with falling orders when the global economy began to slide, causing them to cut output more sharply than larger enterprises. Next are the "be careful what you wish for" policies. China took very aggressive measures to pump up bank lending, with the result that a fair bit went into the stock market, producing what looks like a bubble. Now the authorities are trying to contain it. So now banks are slowing their new lending. From Cajing: China's big state-owned commercial banks extended around 168 billion yuan worth of new loans in July, down sharply from the 497 billion issued in June, banking sources told Caijing on August 4. The sharp decline in lending signals the effectiveness of the central bank's "fine tuning." While officially maintaining a "moderately loose" monetary policy, the People's Bank of China and other regulators have been informally warning commercial banks to maintain the integrity of the credit evaluation process and have penalized aggressive lenders by requiring them to purchase billions of yuan worth of bills. Last are some excerpts from "Surely no one still believes Beijing's numbers are true," in the South China Morning Post: If you add up all the output numbers published by the different provinces, the total figure you get for the country's gross domestic product is a meaty 10 per cent bigger than overall national output as measured by Beijing. ... Even senior officials scoff at the country's official unemployment rate, which has remained miraculously stable between 3.9 and 4.3 per cent through all the economic upheavals of the past seven years. At the same time, retail sales figures are widely considered useless, because they are measured at the wholesale level and because they include elements of both government and corporate procurement. If you want to get a picture of trends in consumer demand, say economists, you are better off looking at income figures. Except those are dodgy, too; even official media ridiculed government figures out last week claiming urban workers have enjoyed a 12.9 per cent increase in wages over the past year. Meanwhile, data for investment in fixed assets, which include roads, buildings, industrial plants and the like - the biggest single component of China's gross domestic product - is considered deeply suspect. That's because under the mainland system, investments are counted as having been made when the funds are disbursed, rather than when the money is actually spent. Many of these problems stem from the method the government uses to compile statistics. In China, economic activity is measured in terms of how much stuff is produced, unlike in other economies, which look at how much is consumed. The results can be wildly misleading. Economists have long wondered how Beijing can come up with accurate figures for GDP just two weeks after the end of each quarter, when it takes US statisticians a whole month. And they've been scratching their heads for years over how in a heavily industrialised economy like China, electricity generation numbers appear to bear little relation to overall output.... If you compare nominal figures for GDP - that is the actual yuan value of output - with the official growth numbers, you find the two bear little relation to each other. That's not surprising. The growth figures are supposed to take into account the price changes across the overall economy, which in China should fall somewhere between consumer and producer price inflation rates. Only if you derive the overall inflation rate implied by the official figures for GDP, the numbers you get for the past few years are frequently way out of line with both consumer and producer inflation (see the second chart); clear evidence that Beijing's statisticians have been manipulating the data for their own ends.

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