There have long been doubts about the reliability of Chinese economic statistics among China-watchers. Local officials are known to exaggerate the data to make their local economy appear more prosperous than reality in order to gain political leverage. Inaccuracy of the data may also be exacerbated by technical reasons, such as the omission of data or incomplete surveys which fail to capture a comprehensive picture.
The suspicions around China’s economic data mounted when Li Keqiang, China’s vice-premier who is expected to succeed Wen Jiabao as premier in early 2013, told the then-US ambassador, Clark Randt, in 2007 that China’s GDP figures are “man-made” and “for reference only”. Instead, Li listed three indicators that he keeps a close eye on: electricity consumption, rail cargo volume and bank loans. He explained that these indicators better reflect the health of the economy.
Source: National Energy Administration, National Bureau of Statistics, Haver, Timetric.
Electricity consumption is viewed as a gauge of industrial activity, which is a key driver of China’s economic growth. After surging in late 2009 owing to the government’s large fiscal package (peaking at 27.6% in November 2009), electricity consumption has followed a notable downward trajectory. The latest April outcomes showed that both electricity consumption and production eased sharply in annual terms, down to 3.7% and 0.7% respectively.
Source: National Bureau of Statistics, Haver, Timetric.
A similar story emerges when looking at rail cargo volume; another indicator of industrial production as it tracks the demand for goods (including commodities, such as coal) for delivery to the point of sale. Growth in the series has moderated since the beginning of the year after being broadly stable following the end of the government’s stimulus measures in 2010. The latest outturn published for March suggests that growth was below 5% hinting at inherent weakness.
Lastly, looking at the final indicator, bank loans, the headline data for Q1 2012 was little cause for concern. Chinese banks issued RMB2.46 trn in new loans in Q1 2012, above the level last year, and broadly in line with market expectations. However, the details showed that the proportion of medium- to long-term loans (the component reflecting business’ incentive for long-term investment) only accounted for 33.8% of the total new loans in Q1 2012, compared to 65.0% in Q1 2011 and 47.7% for the 2011 calendar year. In April, the issuance of new bank loans fell sharply compared to last month, and the share of medium- to long-term loans also declined further to account only 27.8% of RMB681.8 bn of total new loans issued.
The gloomy picture painted by this set of figures suggests that the Chinese economy has becoming increasingly fragile, and GDP growth is likely to moderate further in Q2 2012. The premier-in-waiting, no doubt, will be feeling anxious from this assessment. Yet, he can take some comfort from the fact that the government remains open to ‘policy fine tuning’ to help stabilise growth, albeit at a slower pace than previously. Still, a question remains over the government’s threshold barrier and the speed at which the government will intervene.