But why is China’s economic data collection so problematic? What do economists and investors use instead?
Collecting economic data is really hard, particularly for a large and emerging economy like China. “The quality and breadth of U.S. economic statistics is simply on another planet compared to China’s data,” laments Christopher Beddor, deputy China research director at Gavekal. “It’s striking how little progress there has been in some areas over the past 20 years,” particularly in measuring services and household consumption.
China’s data collection also doesn’t match how other countries measure economic data, in part owing to its history as a centrally planned economy. Scissors, who is also chief economist at research firm China Beige Book, suggests that many transactions within state-owned companies, such as between parents and subsidiaries, are done on a “nonmarket” basis.
“In terms of the surveys, sometimes they refuse to ask the right questions. They don’t have an unemployment survey that asks about unemployment,” he adds.
Dan Wang, China director for the Eurasia Group, points out that there are incentives to manipulate the data that goes into national surveys. “Businesses underreport to avoid taxes, local officials overreport to get promotions,” she notes. “This problem has been aggravated in this economic downturn.”
China’s unreliable numbers have created a “cottage industry of alternative measures of GDP growth for investors,” says Beddor of Gavekal. “But none have really earned an industry consensus as superior or truly reliable.”
“I used to rely on electricity,” says Alicia García-Herrero, the chief Asia-Pacific economist at investment bank Natixis, though she adds that there’s now more data available. Analysts today look to data points like sales of consumer durables or the popularity of luxury goods to measure things like consumption.
For Beddor, the answer is to “look at as many data series as you can and try to form a narrative of what’s happening in the economy.”
Some data points can be cross-checked with other sources, including those outside China, when it comes to trade statistics. And China’s private sector can also be a source of insight into how the economy is doing, even if those conclusions don’t come with a hard number. “If you talk to many businesses, you get a very good sense of what’s going on,” says García-Herrero.
Unreliable data can also be valuable as a signal of what Beijing is thinking, Wang says. “Even if governments overreport GDP growth, markets will take it as anticipating policy support to reach the target,” she explains.
“Making decisions on China is about policy signals. It’s not a market-driven economy. State decisions on policies are the most important thing to follow,” Wang says.
If U.S. economic data starts to look a little more unreliable, that’s likely to make businesses more unwilling to make large spending decisions. “When you’re facing that kind of uncertainty, it’s harder to make major economic decisions,” Scissors of AEI says. Companies may hold back on committing to new investments if they’re not confident that “conditions are ripe,” he warns. “You will get less economic activity.”
That’s certainly been the case in China. Both domestic and foreign businesses held back on investing in China owing to concerns that the country’s economy was worse than official numbers suggested, with some analysts even calling the country “uninvestable.”
