The Chinese Devil Wears Prada: Why 0% Growth is the New Size 6.8%

RGE Monitor ^ | 01/22/09

[TigerLikesRooster]

The Chinese Devil Wears Prada: Why 0% Growth is the New Size 6.8%

Nouriel Roubini | Jan 22, 2009

The Chinese came out today with their 6.8% estimate of Q4 2008 growth. China publishes its quarterly GDP figure on a year over year basis, differently from the U.S. and most other countries that publish their GDP growth figure on a quarter on quarter annualized seasonally adjusted (SAAR) basis.

When growth is slowing down sharply the Chinese way to measure GDP is highly misleading as quarter on quarter growth may be negative while the year over year figure is positive and high because of the momentum of the previous quarters’ positive growth.

Indeed if one were to convert the 6.8% y-o-y figure in the more standard quarter over quarter annualized figure Chinese growth in Q4 would be close to zero if not negative.

Other data confirm that China was in a borderline recession in Q4 and that it may be in an outright recession in Q1: production of electricity plunged 7.9% in y-o-y basis; the Chinese PMI has been below 50 and close to 40 for five months now.

[TigerLikesRooster]

I like this prada-wearing devil better:

[GeronL]

and I don’t trust the Chinese government to tell the truth anyway and they are basically saying 0% growth in the 4th qtr?

[bruinbirdman]

Nouriel Roubini says, "So China is in a recession regardless of what the highly massaged official numbers claim."

yitbos

[ninonitti]

Perhaps if they were nicer in Tibet........nah not a chance.

[ff52051]

Are you kidding me?

We have used a year over year measure to describe the GDP growth quarterly since eternality, and its not just us, many other countries do this as well, otherwise you wouldnt have heard any quarter growth rate exceeding 2-3 percent per quarter, otherwise the overall year over year economic growth rate should have exceeding 20% per year if you could have the capability to put all the quarter growth number together and do a little maths.

Not to mention the fact many economy index have a seasonaly effect and some quarter can have a negative growth rate, espeically if your economy is fast-expanding.

[ff52051]

Btw,

China’s GDP for Q1-Q2 2008 is 13.062 trillion RMB or 1.91 trilliion USD.

China’s GDP for Q1-Q3 2008 is 20.1631 trillion RMB or 2.92 trilliion USD.

While China’s GDP for Q1-Q4 of 2008 is 30.07 trillion RMB or 4.4 trillion USD.

The inflation for Q4 is less than 3 percent and 5.9% for the entire year.

So actually you can do the maths and estimate China’s Q4 growth rate over Q3, and see if China has overestimated or actually has underestimated the growht rate.

[Proud_USA_Republican]

Ditto. Now thats a firm tasty GDP I can believe in.

[grey_whiskers]

*PING* to post 2.

Meow meow!

[dennisw]

Ann Hathaway.... funny movie

[cmdjing]

See here for details

http://www.calculatedriskblog.com/2009/01/britain-officially-in-recession.html

US growth figures are not year on year but quarter on quarter seasonally adjusted. What Roubini notes is that Chinese growth is based YoY which tends to subject growth rates to a smoothing effect. Compared to QoQ it understates growth when the economy is booming but overstates it when things are going bad.

Lets say Q1 of 2007 the economy is at a base of 100. Q1 = 102, Q2 = 104, Q3 = 106, Q4 = 108, then the next year Q1(2008) = 110, then Q2 = 112, Q3 = 114, and finally Q4 = 112. On a Quarter on Quarter bases you will have seen a 1.8% decline in GDP. However on a year on year basis comparing Q4 of 2008 to Q4 of 2007, you will have seen 3.7% growth.

For a rough estimation of Chinese GDP growth we can regress backwards. Chinese GDP growth for 2007 was about 12%. Assuming 3% growth per quarter, we can set the base of the beginning of 2007 at 100, Q1 = 103, Q2 = 106, Q3 = 109 and Q4 = 112. Chinese 3rd quarter GDP growth for 2008 was 9% so Q3(2008) = 118.81. Fourth quarter growth was 6.8% so Q4(2008) = 119.62. Quarter over Quarter growth would only be 0.6%, nearly stagnant, assuming 2007 growth rates were evenly distributed and avoiding any seasonal adjustments.

[ff52051]

Of cause I know what he trying to say.

The problem is, I have already provided the GDP data per Quarter of China in 2008, so from the number you can see Chinese GDP based on a quarterly measure is actually very “seasonaly”.

If you really prefer a Quarter over Quarter measure over a Year over Year one, then China’s GDP growth rate in Q4 has actually accelerated instead of decelerated.

[snarks_when_bored]

My heart skips a beat when I see Anne Hathaway. Let the Chinese cheat on their statistics...who cares? Let that internet rumor be false...who cares? More Anne, please!

[grey_whiskers]

Rent the movie Get Smart. She's the co-star. There are scenes in there which will make your heart skip like a lamb. (Or like the Renaissance Festival comic Terry Foy, who specialized in Spoonerism-base fairy tales) says, "It sets my part hounding!"

And the movie is very funny to boot.

Cheers!