Whether to believe China's GDP figures
Jul 15th 2015, 6:47 by S.R. | SHANGHAI
IT ALL seems a little too perfect to be true. The Chinese government set a growth target of “about 7%” this year. And for a second consecutive quarter, despite ample evidence of stress in its industrial sector, it managed to hit that right on its head. In the three months from April to June, the economy expanded 7% compared with the same period a year earlier. Cue the chorus of scepticism: Chinese data just cannot be trusted. goes the usual refrain. Yes and no. There is a difference between smoothing data and totally fabricating it. Evidence suggests that China is guilty of the former (the lesser charge) but not the latter (the more serious allegation).
As China’s economy has become more crucial to rest of the world, its data have also come under closer scrutiny. The theory was that this would make it harder for its boffins to play with GDP numbers. In the first quarter, though, major doubts resurfaced. Industrial production fell to its weakest growth since the depths of the global financial crisis, while the property market, a pillar of the economy, slumped. When China reported real growth of
7% year-on-year in the first quarter, economists noted that this did not stack up with its nominal growth of 5.8%. The only way to arrive at the higher real figure was to record a GDP deflator of -1.1%, implying that the economy suffered broad-based deflation, a bizarre development when consumer prices rose by more than 1% at the same time. Had the GDP deflator been accurately estimated, Chang Liu and Mark Williams of Capital Economics reckoned, real growth in the first quarter would have been about one or two percentage points lower.
What’s more, the sources of Chinese growth in the second quarter were less mysterious than in the first quarter. While investment continued to slow, services accelerated. The industrial sector grew 6.1% year-on-year in the first half, down from 6.4% in the first quarter. By contrast, the services sector jumped to 8.4% growth from 7.9% in the first quarter. That matters since services now occupy a larger share of Chinese GDP than industry. There is reason to doubt the sustainability of the services strength. It was predicated to a large extent on financial services benefiting from the stockmarket bubble that popped last month. But the gains for financial services, whether transient or not, were real. China’s statisticians did not invent them.