Blog Post

AEIdeas

China announced 2018 economic results Sunday night. They featured 6.4 percent annualized real GDP growth in the fourth quarter. Real growth was announced at 6.8 percent in the first quarter and Beijing acknowledging this drop within one year will be translated by some as “Start burning renminbi for warmth.”

But do we know Q1’s 6.8 was right? The trick with official PRC numbers is not deciding if they are accurate. The National Bureau of Statistics (NBS) is forthcoming about being a Communist Party organ first and an honest statistical broker second. Or third:

In 2018, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping as the core, all regions and departments implemented the decisions and arrangements made by the CPC Central Committee and the State Council, adhered to the general working guideline of making progress while maintaining stability, committed to the new development philosophy, promoted high quality development, focused on the supply-side structural reform, stayed united {or else} and overcame difficulties.

No, the trick is determining why the numbers contradict each other.

Let’s start small. The NBS says consumer sales of telecom equipment by large firms rose 7.1 percent last year. The China Academy of Information and Communications Technology, quoted in official press, says cell phone sales fell 15 percent. One figure seems likely to be wrong. Thankfully, we have Tim Cook clearing his throat as the tie-breaker.

Harder: announced GDP and population imply GDP per capita of RMB64,500, or $9,400 at the end-2018 exchange rate. Sadly for ordinary Chinese, and the many people who hype GDP per capita, this is not actual money. It’s just an accounting result.

The NBS deserves high praise — really, I mean that — for publishing a true income series. “Per capita disposable income of residents” was reported at RMB28,228, or $4,100 and change, just slightly below GDP per capita (56.38 percent below, if you’re picky). Chinese GDP per capita is fraudulent, and it’s not China’s fault.

Beijing does chip in a bit. Components of 2018 nominal income growth are given at 7.8 percent for urban residents, 8.8 percent for rural, and 6.8 percent for migrants. Nominal income growth for everyone together is 8.7 percent, which only works if rural population is 9 times higher than urban and migrants consist of a lost elderly couple. But urban population is put at three-fifths of the total.

Now the big confusion: what is China’s true growth? In 2015, real GDP was reported 6.9 percent higher in real terms. Given 2018’s full-year 6.6 percent, this is the very gradual slowing the Party sells.

Other indicators aren’t so steady. In 2015 with the slightly faster GDP, electricity consumption inched up only 0.5 percent and energy consumption only 1 percent. Rail freight plunged 14 percent, according to the NBS annual report.

Was 2015 real GDP overstated? Bite your tongue (or MSS might). Instead, energy and freight were said to be weak due to a needed restructuring in favor of services, which became the economic engine. Further, restructuring away from energy-intensive industry benefited the environment. Hooray!

In 2018 with slower GDP, reported electricity consumption rose 8.5 percent while rail freight climbed 9.1 percent. Restructuring over, back to industry, hooray! Either the transition to services stalled or everyone left the lights on all year. The environment went back to suffering. On the bright side, no immediate need for tortured explanations of GDP.

Tragically, it gets much more confusing. Money supply data can be falsified but have been fairly well behaved statistically. In 2015, narrow money stock M1 soared 15.2 percent. This translates as a lot of (certain) monetary activities. In 2018, the decimal point shifted: M1 added 1.5 percent. American M1 climbed 5.7 percent last year. Chinese M1 is really slow.

Nominal GDP is mostly transactions financed in M1. Yet nominal GDP growth in 2015 was 6.4 percent (negative deflator) while last year it was 9.7 percent. There are reasons why nominal GDP sharply diverges from M1. Sharply diverges in one direction in 2015 and the other in 2018 while real GDP growth very smoothly declines — not so much.

On the one hand, on the other hand. I don’t know the GDP growth rate. The data don’t make sense in 2018 or 2015. But Beijing may have a bigger problem than low-quality data.

Outstanding yuan loans were said to jump 13.5 percent last year. This again outstripped nominal GDP, continuing the slow spiral into debt oblivion. In the short-term, lending failed to boost M1 — funds were available but didn’t yield greater monetary activity.

The consensus is that more such stimulus is on the way. Of course, stimulus will make everything fine in 2019, just like it was in 2015 and just like it was in a totally different way in 2018. The numbers still won’t make sense and debt will keep rising, but everything will be fine.