China's Economic Growth Claims Raise Data Doubts

An analysis by Michael Lelyveld
2020-10-23
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china-auto-plant-wuhan-mar23-2020.jpg A Chinese employee wears a face mask as he works on an assembly line at the Dongfeng Honda auto plant in Wuhan, central China's Hubei province, March 23, 2020.
AFP

As China returns to economic growth, the country's official report for the third quarter has drawn mixed reviews on the strength of the recovery.

According to the National Bureau of Statistics (NBS), China's gross domestic product rose 4.9 percent from a year earlier in the quarterly period. The growth rate improved from the second-quarter pace of 3.2 percent and the record 6.8-percent plunge in the first quarter during the COVID-19 lockdown.

In its press release, the NBS highlighted the sharp turnaround from negative growth of 1.6 percent in the first half to a positive 0.7-percent gain in the first nine months of the year.

The official results were seen as signs of success for China's response to the COVID-19 crisis and its economic policies.

"As most of the world still struggles with the coronavirus pandemic, China is showing once again that a fast economic rebound is possible when the virus is brought firmly under control," The New York Times said.

The Wall Street Journal agreed that the third-quarter growth brought China "back toward its pre-coronavirus trajectory half a year after the pandemic gutted its economy."

But the positive reports both noted that the quarterly growth rate fell short of analysts' expectations. Median forecasts of 5.2 and 5.3 percent were reported in surveys conducted by Reuters and the Journal respectively.

"Slower recovery in Chinese consumption remained a drag, with retail sales contracting 7.2 percent in the first nine months of 2020 from a year ago," CNBC said.

Retail sales growth showed faint signs of life with an 0.9-percent increase in the third quarter, posting the first quarterly gain so far this year. Sales in September rose 3.3 percent, topping the 0.5-percent rate in August, the NBS said.

Analysts have kept an eye on retail sales as a gauge of consumption and demand, which the government sees as its main sources of growth.

Dual circulation

President Xi Jinping has been promoting his "dual circulation" strategy as the basis of policy for the next five years. The new economic formula designates the domestic market as the "mainstay" of the economy while assigning lesser roles to traditional sources of exports and investment.

Despite the upticks in August and September, consumer spending has fared relatively poorly this year.

In the first nine months, retail sales in cities dropped 7.3 percent and fell 6.7 percent in rural areas as China's 290 million migrant workers gradually returned to their jobs.

Some key sectors of consumer activity have suffered significant declines. In the catering industry, for example, income has plummeted 23.9 percent, the NBS said.

Meanwhile, exports have shown surprising strength, rising 9.9 percent in dollar terms after increasing 9.5 percent in August, Reuters said. The gains are all the more remarkable in light of the economic slowdown in China's global markets and the recent strengthening of the yuan.

It is unclear whether the surge is sustainable, but for the time being at least, it has boosted industrial output.

Industrial production climbed 6.9 percent in September, beating the Reuters median forecast of 5.8 percent. The NBS has recorded increased output for six consecutive months.

The gains were "mostly due to robust exports," said Nie Wen, an economist at Hwabao Trust in Shanghai, quoted by Reuters.

The combination of export strength and weakness in domestic demand may raise questions about Xi's reading of the economy and the dual circulation strategy, which predicts just the opposite trends.

During the eight-day "golden week" and National Day holiday this month, tourism revenue reached 466.56 billion yuan (U.S. $70.14 billion), or only 69.9 percent of the outlays during last year's seven-day break, the Ministry of Culture and Tourism said.

While the outlook for gradual recovery seems clear, the NBS figures are open to question.

Some problems with the official data, like the jobs numbers, have been recognized for years.

On Sunday, the NBS reported that the urban surveyed unemployment rate fell 0.2 percentage points to 5.4 percent in September from a month earlier, although the measure is widely acknowledged to understate idled workers.

In 2009, the NBS introduced the survey data as an improvement over the wildly inaccurate "urban registered unemployment rate," which stayed virtually unchanged during good times and bad. Under pressure over the layoff numbers in 2016, the official Xinhua news agency argued that "no calculation can include all job losses."

Despite the positive spin on the latest survey, many migrant workers and college educated young people have been left without jobs.

"China's accelerated economic rebound in the third quarter has failed to significantly improve job prospects for the country's young and educated, reflecting a weak link beneath headline growth figures that have been largely engineered by state spending and industrial production," the South China Morning Post said.

Jobless rate

Although the monthly jobless rate for young graduates fell 2.4 percent percentage points in September from August, it was still 4 percentage points higher than a year ago, an NBS official said, without disclosing the actual figures.

The NBS report counted only 179.52 million rural migrant workers in urban areas, a drop 3.84 million from a year before.

The report also left unanswered questions about its accounting of fixed asset investment (FAI), said Derek Scissors, an Asia economist and resident scholar at the American Enterprise Institute in Washington.

According to the agency, investment in fixed assets like buildings, highways and machinery reached 43.653 trillion yuan (U.S. $6.527 trillion) in the nine-month period, rising 0.8 percent and achieving positive growth for the first time this year.

The FAI numbers are significant, in part, because of their sheer size, reflecting China's reliance on big infrastructure projects and property development to stimulate the economy. Based on the current report, China's FAI is equal to 60 percent of the country's nine-month GDP.

But the NBS estimates for FAI have been the subject of a suspicious footnote on year-earlier comparisons that makes the growth claim impossible to substantiate, Scissors said.

"The data of investment in fixed assets of the same period last year are revised according to the results of the fourth national economic census, the statistical law enforcement and inspection, and the regulations of statistical programs. The growth rates are calculated on a comparable basis," the footnote says.

A search for the year-earlier data for the latest report turns up no investment totals, only growth rates, although past FAI volumes were published previously, Scissors said.

The removal of the year-earlier data and the black-box adjustments make the NBS calculations impossible to duplicate, but the remaining available figures imply a widening gap in FAI growth claims.

"The NBS wanted to report investment growth to date this year, so it did, but does not want to report 2019 investment being lower, so it didn't," said Scissors.

"The magnitude of the unincorporated downward revision in 2019 FAI is 3 trillion yuan (U.S. $449 billion). This is larger than the claimed increment to total Chinese GDP in the first three quarters of this year over last. Right now, all else pales," he said.

The data discrepancy may not alter the narrative of China's economic trajectory, which is expected to post stronger growth rates next year barring another COVID-19 outbreak, but it may cast doubt on the credibility of the current growth estimates.

China's data transparency has also suffered from technical problems on the NBS website. Regular users of the NBS databases have been greeted with prohibitive security warnings about information theft and long delays for weeks.

The unexplained outage has limited access to all NBS data other than press releases, effectively frustrating research of industrial production growth and commodities.

The NBS tables have long been a subject of criticism for failing to reflect retroactive data revisions that the agency uses to calculate growth rates.

Despite many promises of reform, the NBS now appears to be drawing a curtain of non-disclosure over more data than before.

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