Tuesday, July 15, 2014

China´s unpredictable GDP growth - Sara Hsu

+Sara Hsu 

Slowing economic growth, uncertainty about measurement tools being used and promises by the government for reform. Those are just three elements making assessing China´s GDP for the coming years tough. Financial analyst Sara Hsu gives it a go at the Diplomat.

Sara Hsu:
Taking a step back, we can define GDP as a measurement of the market value of goods and services produced during a particular period. GDP tells policymakers whether an economy is generally healthy or not, to determine what approach should be taken to improve circumstances. However, China’s problem with inflated GDP numbers and its alternative method of reporting debt (rolling it over and recording it as an asset) lead us to mistrust the reported GDP numbers. Alternative indexes, most recently provided by Premier Li Keqiang, in the form of railway volume, electricity consumption, and bank loans, are problematic as well. Electricity consumption is subsidized, so that even in a downturn, electricity consumption is likely to be buoyant. Bank loans are often provided to larger state owned enterprises that may put the loans to unproductive use. Railway volume fails to capture the services component of the economy. 
Although China’s GDP measurement is a serious problem, there may be ways to determine whether GDP data is more or less reliable. The National Bureau of Statistics performs checks against reported data using alternative sources. For example, household consumption expenditures are first tallied from the retail sales of consumer goods, and later checked against household surveys. We may choose to conduct our own checks on reported GDP figures as well, as some financial analysts already do. Looking at the reported figures of the primary, secondary and tertiary sectors, we can compare elements of the Li Keqiang Index and other proxies. Primary sector figures can, for example, be checked against metric tons of rice or wheat production. The secondary sector reported figures can be compared against the railway cargo volume. The tertiary sector may be checked against sales of new automobile sales and white goods, as well as against housing starts. 
We can also compare the national and provincial GDP statistics. In 2011, the National Bureau of Statistics published economic data for 2010 that revealed a growth rate of 10.3 percent, while China Economic Net reported growth rates in more than 90 percent of provinces that were above this amount, revealing a large discrepancy.
More (including some conclusions) in the Diplomat.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´request form.

Sara Hsu produces a wide range of financial analyses. For a regularly updated overview, check our page here. 
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