Bloomberg News

Bank of America Defends China’s GDP Data

July 20, 2012

Bank of America Corp. has stepped in to defend China’s second-quarter economic-growth data after analysts from Barclays Plc to Mizuho Securities Co. said the figures may be overstated.

Shen Jianguang of Mizuho said in a research report this week that deeper slowdowns in industrial and electricity output contradict the gross domestic product statistics. Lu Ting, a Bank of America economist in Hong Kong, said in a July 19 note that industrial production is in line with GDP and that electricity data may fail to capture some growth.

The debate shows how China’s government is still struggling to win the trust of economists and investors for GDP statistics that contain a fraction of the data released by the U.S. and Germany. Vice Premier Li Keqiang said in 2007 that GDP figures were “man-made” and “for reference only.”

“No country’s economic data are absolutely reliable, but China’s economic data are particularly unreliable,” said Dong Tao, Credit Suisse Group AG’s Hong Kong-based head of Asia economics excluding Japan, who has been covering the Chinese economy for the Swiss bank since 1998. “It’s subject to political intervention from both local governments and the central government -- that’s why people are suspicious of the data.”

Shen, Mizuho’s Hong Kong-based chief Asia economist, said in an e-mail that actual growth is probably around 7 percent when considering monthly data including electricity, housing, infrastructure projects and lending. China may enact a “larger- than-expected stimulus package,” he said.

Maintain Confidence

In a July 17 research note, Shen urged Chinese officials to improve the reliability of economic data as part of efforts to “maintain market confidence.” Government actions in recent months show policy makers are “deeply concerned” about the outlook, he said.

A deceleration in industrial production, “bleak” industrial profits, increasing inventories and “very pessimistic” opinions on the economy from manufacturers are among circumstances that contradict GDP growth, Shen wrote. The reported GDP “no longer adheres to the established relationship” with indicators including industrial production and manufacturers’ sentiment, he said.

Growth in industrial production has slowed to 9.5 percent in June from a year earlier, compared with 15.1 percent in June 2011. Industrial companies’ profits in the first five months were down 2.4 percent from a year earlier.

Accurate Indicator

Barclays economists led by Chang Jian in Hong Kong said in a July 13 note that industrial production growth, the “most accurate Chinese macro indicator,” suggests GDP gained between 7 percent and 7.3 percent last quarter.

The comments by Li, who’s expected to become premier next year, were revealed in a diplomatic cable published by WikiLeaks in late 2010.

Bank of America’s Lu said that while “data quality is a big issue in China” and GDP statistics can be manipulated, he disagreed with people who say growth has been overstated. His report included a graph that he said shows the gap between industrial-production and GDP growth was “quite volatile in the past 10 years” and actually narrower during times of weaker expansion.

In addition, electricity-output data may underestimate production by excluding smaller power plants, whose role has been increasing over time, Lu said. Growth in power output and consumption has also slowed this year in part because a surge in 2011 resulted from pent-up demand following an easing of a government push for energy efficiency, Lu wrote.

Not Cooked

“It’s unfair to say that the numbers are deliberately cooked,” Lu said in a telephone interview. “For instance, local government officials may not have the incentive to overstate their power consumption as energy efficiency is now a new requirement from the central government.”

The government this year should introduce a stimulus amounting to 1 percent of GDP, or about 470 billion yuan ($74 billion), to make up for slowing exports and fixed-asset investment, Lu wrote. Authorities announced a 4 trillion yuan package to cope with the crisis in 2008.

Sheng Laiyun, spokesman for the National Bureau of Statistics, said at a July 13 press briefing that recent assertions in foreign media about electricity consumption and industrial output growth are “wrong.” “China’s economy is generally stable and the slowdown is stabilizing,” Sheng said. The first-half data show that “outside bearish views about the Chinese economy are ungrounded.”

Field Anecdotes

Credit Suisse’s Tao said there’s “no alternative” to relying on China’s official statistics and that he seeks field anecdotes from exporters, construction companies, steel merchants, salespeople and even housewives as part of his research.

The China Beige Book, a new private survey modeled on the U.S. Federal Reserve’s Beige Book, was created in part to respond to concerns about the accuracy and transparency of the nation’s economic statistics. The second-quarter China Beige Book report said official statistics may be lagging behind its independent data that show a pickup, citing interviews of about 2,000 company executives and bankers.

Questions about Chinese data extend to the stock market, where short-sellers such as Carson Block’s Muddy Waters LLC have highlighted discrepancies that led to share plunges and regulatory investigations for domestic companies listed abroad including Sino-Forest Corp.

Even with the concerns about the quality of data, Tao said the economy is probably not in worse shape than the statistics show.

“China’s economy is in the process of a soft landing, and I believe it,” Tao said. “It’s far-fetched to say that China’s economic growth was much weaker than the headline GDP figure simply citing some anecdotes like power consumption.”

--Zhou Xin. Editors: Scott Lanman, Paul Panckhurst

To contact Bloomberg News staff for this story: Zhou Xin in Beijing at xzhou68@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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