Why You Shouldn’t Trust China’s Growth Data

Anomalies in China’s official statistics suggest GDP grew less last year than Beijing claims

By Greg Ip. Excerpts:

"New York-based Rhodium Group has studied China’s data for years and concludes it vastly overstates recent growth. Rhodium estimates China’s output shrank in 2022, when Covid lockdowns were most widespread, instead of growing 3% as official data claim. It puts growth last year at around 1.5% instead of the official 5.2%. It sees growth picking up this year, but called the latest target “unrealistic,” especially without new fiscal stimulus.

Other analysts also think true growth is lower than the official data, though not by as much. Alternative estimates by Finland’s central bank put growth at 1.3% in 2022 and 4.3% last year."

"Yet separate NBS data implies real consumption grew 11%, said Logan Wright, who leads Rhodium’s China research. That, he said, is starkly at odds with a wealth of other evidence, such as Alibaba’s falling online sales, rising household deposits, and local government stress.

China routinely revises down previous years’ indicators, making current-year growth look stronger, without revising down earlier growth. In December, the NBS revised down the level of nominal GDP in 2022 by 0.5%, which served to boost growth in 2023, yet it kept growth for 2022 at 3%."

"Fixed-asset investment, one of China’s most closely watched indicators, is rife with such revisions. In separate reports NBS put fixed-asset investment at 57 trillion yuan in 2022 and 50 trillion yuan in 2023. But instead of reporting that investment dropped 12% in 2023, the NBS said it grew 3%.

How could that be? The NBS must have revised down the level of investment in 2022 without saying so, said Shehzad Qazi of China Beige Book, something it has done repeatedly in recent years."

"Another anomaly: the NBS says real-estate investment contracted 10% in 2023, but also that overall investment—including construction—contributed significantly to economic growth.

Rhodium’s Wright said for both statements to be true, investment excluding property must have grown at spectacular rates. Yet profits were under pressure, foreign investment was retreating, and bank credit was drying up. “So if there’s a surge in private investment, where is it coming from? How is it financed?”

Historically, China’s nominal GDP (i.e. before inflation adjustment) is more volatile than real GDP, suggesting inflation is engineered so as to smooth growth. Last year China forecast nominal growth of about 7% in 2023 and real growth of about 5%. Instead, nominal growth was about 4% while real growth still hit 5.2%. Those can only be reconciled if prices were supposed to rise 2% and instead fell 1%. More likely, prices were higher, and growth lower, than China claims, Wright said."

"Doubts about Chinese data go back decades. For a time, GDP reported by the provinces didn’t add up to national GDP. That has largely receded.

Yet China’s data quality is still subpar. Relative to other countries, GDP comes out uncommonly fast yet is hardly ever revised and lacks basic information such as quarterly consumer, business and government expenditure"