China's Economic Stats Mean Everything and Nothing

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A worker walks past a pile of steel pipe products at the Youfa steel pipe plant in Tangshan, China, in November 2015. The Chinese government never publishes truly alarming economic statistics, the author writes. Official unemployment is not permitted to rise, gross domestic product can only slow gradually, and so on. Kim Kyung-Hoon/reuters

This article first appeared on the American Enterprise Institute site.

China just reported April economic numbers, and observers again rushed to say what they mean. This is a well-worn issue, but there are two reasons from just the past week to indicate that most of what Beijing reports about the economy doesn't mean anything.

The first is general: The Communist Party prefers propaganda to accuracy. When announcing quarterly results, the National Bureau of Statistics (NBS) opens with statements like:

The Central Committee of the Communist Party of China (CPC) and the State Council, together with people all over the country, adapted to and led the New Normal, adopted scientific measures to stabilize economic growth, enhance restructuring, benefit people and control risks, and stepped up efforts to promote structural reform on the supply side while achieving an appropriate expansion of aggregate demand.

As a result, the overall performance of national economy continued to be stable and move in a positive direction, with structural adjustment deepened, new impetus accumulated and positive changes.

I always look forward to those.

Last week, in contrast, there was a People's Daily interview warning of excessive leveraging. It was attributed only to an "authoritative insider," because either you can't give a name when being negative or the party thinks that shadowy figures are the right way to make economic policy statements.

The second reason to ignore most of what China says about its economy is specific: The government never publishes truly alarming numbers. Official unemployment is not permitted to rise, nonperforming loans are plainly too low, gross domestic product growth can only slow gradually, and so on.

Here's a good one. China is said to have an imbalance problem, where growth is too dependent on debt-driven investment and not dependent enough on consumption. For 2014, state media said that consumption contributed to half of GDP growth, which constituted a slow improvement. This seemed plausible—it's hard to quickly restructure a large economy.

Except if the party wants it. For 2015, consumption was said to contribute to almost two-thirds of GDP growth, a remarkably fast shift. But wait, there's more. On Monday, state media announced that consumption contributed to almost 85 percent of GDP growth in the first quarter. Deep restructuring accomplished in less than two years. Or perhaps the whole thing is fabricated.

Is it possible recent figures are accurate? Barely, but that might make the NBS look worse.

The data on consumption dominating GDP growth were published by state-controlled media, citing NBS. Yet NBS reports the increment to its investment series—fixed-asset investment—to be larger than the increment to its consumption series—retail sales—every quarter. Sometimes much larger. For the new growth contribution data to be accurate, the NBS investment and consumption series would have to be so far off as to be worthless.

Others are also complicit. The Ministry of Commerce reports that net exports of goods and services fell slightly in the first quarter. But the drop is far too small to account for the sizable negative contribution trade supposedly made to GDP. Something's wrong there too.

Many in the increasingly large China-watching community will argue that the slightly absurd "authoritative insider" proves the party is serious about economic change. They might even explain how the benchmark consumption series is still useful when it directly contradicts the claim that consumption contributed to 86 percent of GDP growth.

But if you don't want to risk injury from all that stretching, just ignore most of what the government says about the Chinese economy.

Derek Scissors is a resident scholar at the American Enterprise Institute.

China's Economic Stats Mean Everything and Nothing | Opinion