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By Andreas Illmer Business reporter
China has reported its latest economic growth data and once again it's almost
perfectly in line with the official target. Investors in China and the global
economic community may be breathing a sigh of relief - but like every other
time, there's suspicion over whether we can actually trust these figures.
How good are China's stats?
Every three months, China releases what's called its Gross Domestic Product
(GDP) - and economists look at the percentage at which the economy grew
compared to the same period the previous year. And every time, there's doubt
that the numbers might be inflated and therefore can't be trusted.
Economic growth is not only a measure of the overall value of goods and
services produced, but it's also a matter of pride, prestige and aspiration, an
arena where the US or Europe are effortlessly defeated by Beijing and where
China and India seem to compete over the future.
China, though, has more reasons than mere international prestige for possibly
inflating its data.
The chaos that saw the country's stock markets tumble over past weeks and
months has shown that domestic traders are somewhat prone to panic selling and
disappointing economic data has been among the triggers for such panic.
"We all know the growth data is overstated, particularly at the moment," says
Hong Kong-based investment analyst Peter Churchouse. "It's a political gesture:
they have to keep the domestic markets believing that growth is roughly close
to 7%."
While growth data is never 100% accurate, China is still a developing country
when it comes to standards in its fiscal management.
"There is a risk of smoothing it because of the political rationale. But it's
as much technical constraints in terms of data management and collection as
outright political manipulation," explains Tom Rafferty of the Economist
Intelligence Unit in Beijing.
So how is it put together?
The way that the GDP growth figure is collected poses another problem. The data
comes from provinces across the country and as much as Beijing stands accused
of inflating the overall number, the individual provinces are also thought to
beef up their results.
In December 2015, even Chinese state media suggested that regional economic
data had been drastically inflated, with one province reporting revenue 127%
higher than the actual number.
According to US diplomatic cables released by Wikileaks, China's current
Premier Li Keqiang back in 2007 described regional GDP data as "man-made" and
unreliable. He instead suggested determining growth from electricity
consumption, volume of rail cargo and amount of loans disbursed.
As a consequence, economists calculated a somewhat informal Li Keqiang index,
measuring precisely those three factors as a way to put official data into
perspective.
But the problem is that just like the official data collected, the Li Keqiang
index focuses too much on traditional industry while neglecting China's
transition towards domestic consumption and the service sector - which are much
harder to measure than, for instance, the output of a factory.
In an advanced economy, employment numbers or income growth give crucial
additional insight into an economy's performance, but in the case of China,
such data is either simply not published or considered unreliable.
Yet it's not as if there are no other clues that analysts can turn to, explains
Mr Rafferty.
"We've got retail data that comes out every month, and you can get quite micro
level data now on things like cinema tickets, mobile phone and data usage. So
even those are among the things we're moving towards in our analysis."
Bottom line
Gross domestic product is a flawed economic indicator, but "if you don't look
at GDP, what do you look at?" asks Mr Rafferty.
After all, it is the one number which is most widely reported on when it comes
to China's economic performance. And even if it's just for lack of more
reliable statistics, it does have an impact on both China itself and on global
economic sentiment.
"There is a lot of political pressure for Beijing to publish half-decent
numbers," Mr Churchouse sums up. And while that undermines the credibility of
the official release, "the number that's printed does still have a big impact
on the world."
In the end, it means that most analysts treat any official Chinese data with
caution, while having limited ways to establish an alternative, more accurate
assessment of the world's second-largest economy.
Does it even matter to me?
Sure, it matters to people in China. High economic growth is important, it most
likely means more jobs and probably higher wages. But beyond China, why would
you care if you're reading about it elsewhere in Asia, in Europe, the US or
Africa?
Well, economic growth is supposed to be the main indicator of how well a
country's economy is doing. And in a globalised world, China's economy is
crucial to countries around the globe. It's sometimes even referred to as "the
engine of the global economy".
If you're working for a European or Japanese car company and China is an
important market, it matters how much spending power the Chinese middle class
has. If you live in Nigeria and China is planning a massive infrastructure
project, it matters how much money Chinese companies have to spend on that
investment.
If you're down in a mine in Australia or Indonesia and the iron ore or coal
you're extracting is sold to China, it matters whether demand is increasing or
slowing. And if you're working in a steel plant in Wales, it matters whether
China is flooding global markets with steel too cheap for you to compete with.
That's why having an accurate picture of China's economic growth is important.