How Much Is China Cooking Its Numbers?

Business Week(subscription site) ^

[milestogo]

APRIL 8, 2002

INTERNATIONAL -- INT'L COVER STORY

How Much Is China Cooking Its Numbers?

Growth may be wildly overstated. That could mean more social unrest

For the past decade, China's gravity-defying economic performance has been the envy of the rest of the world. Growth has bobbed along at 7% or 8% even as expansion in the West was dropping toward zero. All the while, hard-core skeptics argued that China's numbers are as cooked as a pot of rice--and that the country's growth has been far less miraculous than official figures suggest. Ditto for trade and foreign-investment data. If the skeptics are right, China's fuzzy math could have major implications for the pace of economic reform. Slower growth means fewer new jobs. It also means lower government revenue, making the creation of a social safety net for millions of displaced workers that much harder.

The debate over China's numbers is now getting louder than ever, partly because China itself has raised the subject in some recent pronouncements. What initially grabbed the attention of China hands was some gimlet-eyed research published last December by Thomas G. Rawski, a University of Pittsburgh economist. He wrote that China's growth since 1997 may have been no more than 40% of official rates. The proof, Rawski says, lies in proxies for growth such as energy use. He says it is implausible GDP expanded 24.7% from 1997 to 2000, as officials maintain, given that Beijing acknowledges a 12.8% drop in energy consumption during the same period. Rawski's most startling assertion: While Beijing reported 7.8% growth in 1998 and 7.3% in 1999, China's economy may actually have contracted 2% and 2.3% in those years. He guesses the economy has been growing at 3% to 4% since then.

There's certainly something fishy going on. The question is how fishy. Former World Bank Chief Economist Joseph E. Stiglitz maintains that the evidence of China's vigorous growth is plain to see, both in the cities and the countryside. But even the Chinese themselves admit data from the provinces that is used to compile national numbers is exaggerated. Zhu Zhixin, the director of the National Bureau of Statistics, told the National People's Congress in early March that the NBS had uncovered at least 60,000 violations of the nation's statistics law between May and October of last year alone. "We need better control over data," Zhu conceded.

Does all this matter much to foreign direct investors? Sure, if China's economy is imploding. Otherwise, no. Investors rely on hard data culled from their own market research and sales figures. "Growth does matter, but whether it's 5%, 6%, 7%, or 8% doesn't," says Joseph M. Johnson, senior vice-president of Unilever Best Foods in Shanghai. "Even if there were a year or two when growth was way off, that's not enough to prevent multinationals from being here or coming into the market." In other words, as long as China's middle class, now 100 million strong, keeps growing--and no one questions that it is--there will be new buyers for Unilever's shampoos, detergents, and ice cream.

Johnson's confidence, of course, is born of a conviction that the massive unemployment, poverty, and corruption being produced by China's market reforms will not swell into a social revolution. Fred Hu, Hong Kong-based managing director for Goldman, Sachs & Co., says even in a best-case scenario, reforming the state sector will cause "tremendous stress, lots of difficulties, pain, and potential for social unrest." If the stats skeptics are right, the strains on the system may prove greater than anyone is now predicting.

By Frederik Balfour in Hong Kong

[big bad easter bunny]

Who does their accounting? Anderson?

[Fish out of Water]

index bump

[Southack]

Sweet. It's about time that the mainstream press started exposing the great Chinese economic lie.

China is finally running out of oil, even though its energy consumption has declined recently. Since it will soon be importing oil, that means that its manufactured products will have to begin accounting for the real-world price of oil rather than the subsidized domestic oil of the past. In short, the price of Chinese goods is about to jump up a bit.

China has also been importing less gold and other such items, contrary to the trend that one would expect from a "growing" economy.

[Thud]

ping

[Libertina]

(Source: The Wild Swans)
This is the nation that carted in truckloads of vegetables during the night to plant in *show* fields- proving that the Chinese could grow crops with amazing yields, within inches of each other. And giant vegetables on the backs of carts, obviously fake, touted as real. Villagers dared not breath a word of disbelief, fearing they would be turned in. A mass refutation of reality. And we ask if they cook their books... LOL

[Joe Boucher]

Trouble with a capital T in China. Gotta love it. Hope the whole place implodes.

[Deuce]

Does all this matter much to foreign direct investors? Sure, if China's economy is imploding. Otherwise, no.

The writer of this article is apparently unaware that the foreign direct investors, themselves, purposely created/encouraged the appearance of growth in the first instance.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
- Ludwig von Mises

[maui_hawaii]

Does all this matter much to foreign direct investors? Sure, if China's economy is imploding. Otherwise, no. Investors rely on hard data culled from their own market research and sales figures. "Growth does matter, but whether it's 5%, 6%, 7%, or 8% doesn't," says Joseph M. Johnson, senior vice-president of Unilever Best Foods in Shanghai. "Even if there were a year or two when growth was way off, that's not enough to prevent multinationals from being here or coming into the market." In other words, as long as China's middle class, now 100 million strong, keeps growing--and no one questions that it is--there will be new buyers for Unilever's shampoos, detergents, and ice cream.

This guy nails it. It also IMO reveals how Wall Street views China...

#1. Middle Class in China=about $200 USD a month...

While thats nothing big for us... thats good for them... and corporations who sell $2 bottles of shampoo...

Making $ in China all depends on what you sell...and those products are limited...

There is a market in China, but people don't understand it at all... and generally they overstate the H#ll out of it...

It also depends on which 'multinationals' are there and in what form? Is your GE can opener made in China? How many of the made in China versions are actually sold in China?

There is a lot to say about that quote.

[maui_hawaii]

The problem with China is not their 'middle class'... heck, most of them either work for US corporations, were educated in the US, Canada, Europe, Australia, etc...work for Taiwanese companies... and they have a lot to lose by causing trouble. They want reform and are generally very well mannered (with exceptions).

The middle class is the only hope for the whole country!

Generally speaking they have accepted commonly accepted international norms... AND THAT is why they are middle class! They don't want to kick some Taiwan @ss, they want to get some Taiwan $$$ and a job.

Its the communist @ss^%#@s and uneducated peasants that we need to worry about... half the time those are both one in the same...

[maui_hawaii]

I wonder how many of the 'middle class' are employed in the hotel and tourism industry?

[maui_hawaii]

bump

[maui_hawaii]

Q: what do you call a middle class Chinese?

A: Taiwanese

Like it or not, label it how you will, its the truth though. Might not be Taiwanese in citizenship, but in many beliefs, absolutely...on the rest of the stuff they are simply fooling themselves.

[PhilDragoo]

China Reform Monitor No. 439, April 5, 2002
American Foreign Policy Council, Washington, D.C.
http://www.afpc.org

Editor: Al Santoli

FAULT LINES IN CHINA'S ECONOMY IGNORED BY WEST

April 5:

[Editor: In the March 21st Washington Post, an op-ed by respected China scholar Dr. Arthur Waldron emphasizes warning signs in China's economy that are being ignored by many Western business and political analysts. An abbreviated version of the editorial follows:]

"Officially, China has for some time been claiming growth rates of 7 percent or more, but information casting doubt on those figures has long been available. Visitors see lots of rural people camped out at urban railroad stations or on sidewalks. Block after block of abandoned construction projects in cities suggest someone has run out of money. Almost daily protests by workers, many violent, are also a clue that all is not well."

"Moreover, even the official figures don't make sense: How can it be that energy use is falling in a booming economy? And unemployment rising (as the official statistics show)? This is unprecedented in economic history. Once again Chinese officialdom has put one over on Western observers. There are a number of prime candidates for the red-faced list, including the CIA and others in the U.S. government who appear to have been clueless; the high-priced reports of the Economist Intelligence Unit and others in the premium newsletter trade, plus all the major media in the West and in Asia."

"How could so many people miss something that, in retrospect, was so obvious? Because of the chronic pathologies of China watchers: groupthink (in the academy and government), fear of Chinese reaction, job pressure (in the intelligence community and the media) and greed and wishful thinking (in the case of business). The reason is that once again we have taken our cues not from our own observations and deductions but from China's official self-presentation. We hear 'economic reform' constantly proclaimed, but fail to observe that it is not really being practiced, at least not consistently and thoroughly."

"The only way China can possibly create enough jobs for its immense population is by adopting a free-market entrepreneurial economic system, in which the state's role is limited to the provision of justice and arbitration according to clear and legitimate rules. In such a system, however, no place exists for a Communist Party, whose justification, in theory, is its skill at guiding the economy and the society. (And whose current reality is its existence as a lawless elite, looting China in the interests of its members.) So the necessary economic reform is out of the question without political change."

"China's economy is dysfunctionally bifurcated. Supply is still largely determined by the Communist Party, which allocates scarce resources to state enterprises manufacturing things people don't want and won't buy. These enterprises are kept afloat by 'loans' (never repaid) from the massive savings the Chinese people have entrusted to the state-controlled banks. Their rule of thumb seems to be: If you are state-controlled and losing money, you qualify for big loans. If you are private and growing, you do not. That is a recipe not for growth but for economic collapse."

Copyright (c) 2002, American Foreign Policy Council

[batter]

If the skeptics are right, China's fuzzy math could have major implications for the pace of economic reform. Slower growth means fewer new jobs. It also means lower government revenue, making the creation of a social safety net for millions of displaced workers that much harder.

Here is an article I found in today's Taipei Times I thought you might be interested in:
China's safety net is full of holes

The article basically goes over the failure of China's communist system to guarantee social security and how it has led to the recent demonstrations in Liaoyang and Daqing. Further evidence of 'cooked books' and a slower than expected/reported economy?....

[batter]

I though that you might be interested in the article below (found via ChiCom Watch). It is from the Asia Times and goes over China's energy situration (including solutions such as natural gas and methane exploration and pipelines):
The Chinese Quest for Energy
The article also mentions that althought some of China's strategic progress in Central Asia has been compromised by the war on terror, the US may also be aiding them by killing some of the Taliban/Al Queda trained Xinjiang seperatists/terrorists (Xinjian has huge energy reserves). I had not thought of this, but don't really care for those using terror to achieve thier means anyway. China, however, is also trying to use the war on terror (i.e. we look the other way if they violate some human rights and they'll support the war) to crush the non-terroristic separatist movement. The FBI is also collaborating with Chinese enforement agencies to track down terror funding links.

[junta]

IMHO China is a dog economically. Remember the "Red Chip" boom of a few years ago? One of the misinformation financial channels had a guest on who let the dog out of the bag when he stated that investors in the West were basically putting up 100% of the investement capital for 49% control, not a good formula. Things like this make me skeptical of the Chinese being anything more than cheap labor for "our" companies.

[untenured]

This is an interesting article, which I didn't see the first time around. When I was there in 95, rapid "takeoff" growth was clearly evident in the cities, unless somehow the government was massively pouring money into pointless skyscrapers, which seems ridiculous.

But it seems hard to believe that the '97 crash could've devastated almost every other Asian economy and left China unscathed. If the reports about large numbers of abandoned construction projects are true that would also suggest a major bust. I think there is an excellent chance that the books have been cooked at least since 1997, although there is still clearly transformative industrialization going on, and there has certainly been remarkable change since the early 1980s. The long Chinese boom is real, but they have probably tried to camouflage a major bust in the late 1990s, which will come back to bite them harder.