I want one of those Chinese calculators!

It would tell me I’m rich, and I’d love to hear that. From the unlinkable SCMP, a wickedly humorous account of the inanity of CCP statistics.

China GDP data makes no sense without special Beijing

I have a problem with simple things like one plus one equals two when it comes to figures put out by the National Bureau of Statistics. It seems they have an entirely different sort of calculator at work in

Take the latest announcement that economic growth in the second quarter was 9.5 per cent year on year. It was a bit higher than was entirely welcome, but growth is growth and this certainly looks like a good growth number.

Just for starters, however, we were also told that the growth rate of investment in fixed assets was 25.4 per cent year over year, definitely well above the latest cool-down target of 16 per cent.

Our difficulty here is that the fixed asset figure is in nominal terms while the figure for gross domestic product is in real (inflation-adjusted) terms. But it can be resolved. We also have a price index for fixed asset investment and a little spreadsheet work serves to put the numbers on the same basis.

This then allows us to take the fixed asset figures out of the total and calculate how strongly the rest of the mainland’s economy is growing.

Take note that it is no trivial exercise. Fixed asset investment absorbs an astronomical 53 per cent of the mainland’s GDP, a figure rarely to be found elsewhere on this planet.

The first chart shows you the result of the exercise, done on a four-quarter average basis here to smooth out the usual volatility of mainland statistics. That stated growth rate of 9.5 per cent drops to a minute 0.06 per cent, effectively zero. If these fixed asset
figures are right, then the rest of the mainland’s economy is not growing at all.

It gets worse. Another component of GDP is the balance in foreign trade. The second chart shows you that for the 12 months to June, this amounted to a surplus of 657 billion yuan, or 4.5 per cent of GDP. Almost all of it materialised over the past 12 months. In June
last year, the surplus amounted to less than 1 per cent of GDP.

Unfortunately, I cannot calculate an inflation-adjusted figure for the surplus. The numbers simply are not there and thus I cannot give you a third line on that first chart to show what the growth of the rest of the economy would be if you took the trade figures out of GDP as well.

Rest assured, however, that you would get a negative growth figure if it could be done. Even taking the conservative tack, that figure would be at least minus 4 per cent. Aside from fixed asset investment and trade, the mainland’s economy is contracting, not growing.

And then we get even more of a puzzle. We are also told that consumption, another component of GDP, registered strong growth of 13.2 per cent. How is this possible? By the time you have taken out fixed assets, trade and consumption, you have very little of GDP
remaining. If they are all growing by more than 9.5 per cent, what is left to pull the overall figure back down to 9.5 per cent?

Well, let us say the consumption figure refers only to personal consumption expenditure and not to government consumption. No luck again. Government expenditure for the 12 months to June was up 16.2 per cent year on year.

I shall grant you that these government figures are nominal rather than inflation-adjusted and also comprise some fixed asset investment, but, even if appropriate adjustments could be made, there is no way they would yield the big minus figure we now need.

The only thing left is inventory adjustments and I am fully prepared to believe that there was massive destocking over the past six months. We are talking, however, of the very smallest component of GDP, a bare 0.33 per cent of the total last year. No, this also
will not give us what we need.

What we actually need is one of the special calculators they use in Beijing. Without one of these to help us, the economic growth figures just come out as nonsense.

Perhaps they are.

What to believe? 0.06 percent or 9 percent? They wouldn’t be playing games with these numbers, now would they? What a silly idea.

The Discussion: 34 Comments

What Jake Van Der Kamp is saying is that, no matter how one tries to make sense of the GDP statistics (never mind make some kind of exact financial analysis) they simply don’t add up.

The three main indicators of economic growth are fixed asset investment, consumption and trade. If we take the figures individually, the Chinese economy (conservative estimte) CONTRACTED by about 4%.

July 23, 2005 @ 11:45 am | Comment

Why hasn’t anyone noticed this before? These sorts of things make me suspicious.

July 23, 2005 @ 11:46 am | Comment

By the way, fixed asset investment (FAI) is investment in infrastructure (e.g. roads, airports, buildings) and also facilities, equipment and machinery. I.e. the kind of stuff that doesn’t usually make money. It only contributes indirectly to the economy. During the lending frenzy by state banks in 2003-4 they shovelled out hundreds of billions for fixed asset investment projects. Many of these projects will never make money and the banks will very unlikely see a lot of that money again. This is a ticking time-bomb for China.

FAI is China 2004 was 45% and is running at an unbelievable 53% this year. These rates are almost unreal. For instance, China’s ideal, healthy and sustainable FAI growth rate SHOULD be around 15%.

Another strange statistic is that this year Chinese imports have slumped (obviously contributing to an even higher trade deficit). But, exports have risen considerably (in Asia generally, they’ve dropped). Chinese factories getting rid of their stockpiles together the loosening of trade restrictions in the west are probably to blame.

However, the Chinese economy is looking extremely dodgy and susceptable these days. The Yuan revaluation has also come at probably the worst time possible as the effect on growth (it will slow it) is exactly the opposite of what China needs at the moment.

Exciting days ahead for sure.

July 23, 2005 @ 11:52 am | Comment

Noticed what before Laowai? It’s accepted that China play about with their statistics (the classic was always when all the provinces reported GDP growth of 10%+ and the government reported a lower growth figure) but this year is the first time we’ve had these particular figures to compare.

The last time the China economy contracted (at least partly) was 1997/8. It’s generally accepted nowadays that Chinese claims to have side-stepped the economic crisis of that year was false.

July 23, 2005 @ 11:57 am | Comment

Laowai, economists have been chuckling over CCP “statistics” for half a century.

July 23, 2005 @ 12:14 pm | Comment

There were more stories in the news media answering chinese GDP statistics a few years back. There were also stories that said chinese government made the number smaller than it was. There were all kinds of explainations.

By looking at the its exposive foreign trade numbers and energy usage (power shortage, etc), I am more willing to believe the number 9% rather than any number less than 5%.

July 23, 2005 @ 2:51 pm | Comment

But the point of this article is precisely that the foreign trade surplus and the energy blackouts are just one factor in many that are used, and that the factors don’t add up. I guess you can believe what you want, but mathematics really should be consistent.

July 23, 2005 @ 4:09 pm | Comment

One of the biggest myths about China in the West at the moment, in my opinion, is that everything in the Middle Kingdom is meticulously planned with patience and foresight.

Unfortunately the mistake here is to confuse heavy state involvement in the economy with competent management of that said economy.

Much of my experience in China showed me that long-term planning is often marred by ineptitude, corruption and the political whimsy of whoever happens to be in charge for that particular five minutes.(I seem to recall a school gym that suddenly turned into a library halfway through its construction).

As for those who look at the insane scale of urban construction and say it symbolizes the engineered modernization of the Chinese peasantry, well I have three words for you: real estate bubble.

How many peasants moving in from the countryside can afford to live in a luxury condo?

Chinese development is comprised of many things, but good planning and coordination are not to be found among them. Economic warlordism is still king, and until the central government gets that under control, those mountain villages in the hinterland will continue to get 5 billion US airports designed by Norman Foster.

But statistics are pretty.

July 23, 2005 @ 5:00 pm | Comment

Patrick, totally agree. The notion that China’s economic miracle was architected by enlightened economists in the employ of a newly magnanimous CCP is pure myth, and one eagerly propagated by the Party. (All the Chinese newspapers sing about half the time is how brilliant the CCP’s “Socialism with Chinese Characteristics” is.) I see people cooing over the CCP’s economic “genius”and I marvel at the snow job they’ve swallowed hook, line and sinker.

July 23, 2005 @ 5:33 pm | Comment

” I study nuclear science, I love my classes, I got a crazy teacher,He wears dark glasses, things are going great, and they’re only gettin’ better, I’m doin’ all right, gettin good grades,The futures so bright I gotta wear shades”

July 23, 2005 @ 6:42 pm | Comment

One thing I do agree is that statistics from China is not realiable.

The statistical methodology in China is still USSR style from planning economy. It is based on production. It is still in a transition process to western methodology, which is based on consumption.

Western authors, with little training on USSR methodology, usually draw extraordinary conclusion based on their western methodology. To excuse my offense, the only value of this kind exercise is to kill time.

July 23, 2005 @ 7:27 pm | Comment

You guys are missing the big picture. you have to look at who is involved. most of the money in the world is controlled by 13 guys who meet once a year in switzerland. the bankers are the ones who are at the tops of all the sercret societies, and they control everything we do, and have. borders mean nothing to these people, and they play with our fates on whims. people need to realize what the root cause is, and who is behind everything that is wrong with the world today.

July 23, 2005 @ 7:28 pm | Comment

Chris, come the revolution there will be a New World Order!

July 23, 2005 @ 7:46 pm | Comment

” Cold hearted orb that rules the night, removes the colours from our sight. Red is gray and yellow white, but we decide which is right. And which is an illusion?

July 23, 2005 @ 8:36 pm | Comment

a vote for the new order is a vote for satan. what side are you on? personally, im dead set against any kind of world order, its not worth the price.

July 23, 2005 @ 9:47 pm | Comment

I was being totally tonguue in cjheek. Of course we all know a teensy-weensy percentage of people control an obscenely huge amount of the world’s wealth; something like 1 percent owns 99 percent of the loot. But you know, there’s virtually nothing to be done about it. Resign yourself and get as much pleasure out of life that you can. It’s the only way to stay sane in an inherently unfair world.

July 23, 2005 @ 9:54 pm | Comment

Richard, Please don’t do that tongue in cheek thing. It confuses the kids.

July 23, 2005 @ 10:40 pm | Comment

The accounting methods that the Chinese use are and were completely unreliable, of no value in attempting to understand the economic conditions of the country.

The only real measure was the anecdotal surveys of what is new compared to a year ago, what people have compared to a year ago, the price of things compared to a year ago, and the size of the foreign exchange reserves.

As for the comments about the economic planning accument of the Chinese, you all are correct. But that can be said of any country. FDR, the Germans, the French, the Japanese, the Soviets, and the Maoists have never been able to engineer economies very well. Economic development does not come from government bureaucrats determing what is good, but from people just doing their own thing, buying, selling, making things.

July 24, 2005 @ 2:56 am | Comment

Does anyone remember the name of that American bloke who monitored eletricity consumption in China and gave us a more accurate GDP figure? A couple of years ago it was. (Electricity consumption is a general guide to economic production, manufacturing and domestic consumption = GDP).

I think the guy had a polish kind of surname.

Anyway, I honestly don’t think that any member of the government knows the true GDP figure. Jake Van Der Kamp is simply taking what figures are available and concluding that they make zero economic sense. No more and no less.

China is a disparate collection of regional economies. The sheer size of China, the lack of a fully-implemented rule of law, regional priorities, lack of central authority, political nature of the state-owned banks/state-owned industries, and obscene amount of FDI make any economic analysis flawed and open to wide interpretation.

However, one constant is that about 18 months ago, when the economy was feared to be overheating, a load of economists (rent-a-quote Andy Xie among them) all said the if the economy showed figures in excess of 10% GDP growth then overheating was a certainty. What figures did China come out with? 9.8, 9.7, 9.6, 9.9%. No one can take these figures seriously.

Remember, the government have control over large sections of the economy so anything can be covered up–apart from the consequences of an economic downturn…..and China is way, way, overdue an economic downturn.

And I haven’t even started to talk about the property market.

July 24, 2005 @ 4:01 am | Comment

Another thing, a couple of years ago me and my mates (China economy nerds to a man) all concluded that the one single thing that could take the fizz out of China would be sustained high oil prices (as China needs oil for it’s growth). We all agreed.

However, I don’t need to remind people just how high oil prices have gone up and how long this has been in effect…..and yet….we hear nothing from China.

Anyone who understands basic economics will tell you that a country like China can’t pay this kind of money for oil over this period of time without hurting.

This is why I’m very suspicious of those rosy statistics that keep coming out of the National Bureau of Statistics month after month.

July 24, 2005 @ 4:06 am | Comment

I think you are fairly correct, Martyn. But the over heating aspects of the China market (or any market) is really a reflection of government cheap money easy credit policies. In other words, instead of interest rates reflecting market conditions, the government intervenes and adjusts the rates and availability of credit to induce economic development. Unfortunately, all of these efforts lead to poor investments that build things or produce things that are not wanted (the end result of booms), and consequently the bust cometh. I am looking around here and see a lot of housing complexes and a lot of office space and I do not see any one moving into a lot of them. That would give me those thoughts that someone borrowed money at cheap rates and build something nobody wants to use. The solution is always to liquidate the debts as quickly as possible (the Japanese did not do this).

July 24, 2005 @ 7:07 am | Comment

JFS writes:

“government cheap money easy credit policies”

Ha! A man after my very own heart! Didn’t know you were such an economic buff mate.

I think we could speak for days about your above post.

Anyone not familar with the ins and outs of the China economy would do well to read the above post.

The governemnt shovelled out the cash via the banks from 2002-2004 (peaking in 2003) much of that was put into fixed asset investment at best and vanity projects/offical’s pockets at worst. When it comes time to pay the piper they’ll be caught with their pants down.

I’ve finished an article about this very subject that will (with Gordon’s approval) be going up onto Horse’s Mouth anyday now. I hope you’ll pop over and comment JFS.

July 24, 2005 @ 7:17 am | Comment

didn’t know Richard and many others knew a thing or two about economics, or GDP for that matter.

the SCMP simply does not hold water. Guys, go to dig out some economics readings before spinning out too much.


July 24, 2005 @ 10:30 am | Comment

On the reliability of China’s GDP data, if one believes that the government lies (which is probable as the leaders lied on SARS, right?), then the answer to the question is easy. But, if one doesn’t assume the government lies and think the figure is is not accurate because of the backward system that the number is derived from, then I think I am more willing to believe the government’s number (with some error margin, of course) than those guessing numbers by those economic experts. If the government did not lie, then I would think it has much more data than those guessing experts.

Things like real estate bubble have nothing to do with the reliability of the GDP data.

July 24, 2005 @ 10:54 am | Comment

By the way, there is no question that some local governments tend to overstate the growth rate. But the real question is whether the central government manipulated the GDP number for political purpose (which can make the figure looks much bigger).

Local officals have the incentives (for personal benefit, carreer promotion for example) to overstate the growth rate, but that also means the local governments need to pay more tax to the higher level.

July 24, 2005 @ 11:04 am | Comment


The SCMP colunmist is simply trying to make sense of Chinese government statistics. As I said, he’s not giving a solemn lecture on the dynamics of the current China economy. Can’t you spot a bit of conjecture when you see it?


So far, you sound like a twat. Say something even close to normal and we can talk. Until then, hahaha, bye bye.

July 24, 2005 @ 1:24 pm | Comment

Come on Martyn. The guy does have a point, even if you don’t like it.

July 24, 2005 @ 9:10 pm | Comment

Pete, tell us — what point is it you think he has? Seriously. Because all I heard was some empty snark. I’m waiting for you to elaborate…

July 24, 2005 @ 9:15 pm | Comment

Anyone who understands basic economics will tell you that a country like China can’t pay this kind of money for oil over this period of time without hurting.

Not true Martyn. So long as China is using the oil it purchases to produce goods and services whose market value exceeds the cost of their inputs, no problem.

The problem is that, given the inefficiencies of state run industries, massive bad debt, an artificially low currency, etc., its not clear at all that many/most Chinese exports are being sold at a loss when one calculates the real (hidden) cost of production. Effectively, a massive transfer of wealth from poor Chinese to rich Westerners with the Chinese, through massive purchases of US debt, lending Americans the money, at favourable rates, to buy even more.

China’s export boom may very well be like the merchant who observed that, while he was losing money of every sale, me planned to make it up on volume.

The problem is that no one can be sure what the real fundimentals are because, as Jake van der Kamp notes in his column, official Chinese economic statistics are complete bollocks.

Remember, until very recently virtually every province in China was reporting economic growth rates that were higher than the national average (an impossibility), and the Central government had the unfortunate habit of releasing official annual economic statistics BEFORE THE FISCAL YEAR HAD ACTULLY ENDED.

July 24, 2005 @ 10:25 pm | Comment

Conrad, don’t we call that “creative accounting”?

July 24, 2005 @ 10:29 pm | Comment

pete, they guy made no point. Apart from childish remarks, the nearest he cam to making a point was to say that the SCMP guy’s argument holds no water. The fact is the SCMP guy isn’t making any kind of strong, sound, economic argument. He’s simply saying that the econimic figures are bollocks as they make no sense. And, despite his rough calculations, they still make no sense. He can’t see where those figures come from. That’s it.

I don’t come on here laugh at people and tell them to go read a book berfore commenting. If I did I’d be a tw*t.

July 25, 2005 @ 12:15 am | Comment

Conrad, all I’m thinking is that China would prefer oil at 20 bucks a barrel rahter than what they’re paying now but I understand the point you’re making.

July 25, 2005 @ 12:19 am | Comment


Don’t get agitated. Let’s take a second look at the SCMP egghead’s piece and ask yourself

1) Since when non-transferrable investment has not been accounted for in GDP calcs?
2) What do fixed assets really mean in China’s stats? Does it include private/non-state-owned investments?
3) How much private consumption is actually accounted for in China’s GDP?
4) Lastly, look out for the word “economy”, don’t you think it referred to the same thing throughout the article?

All I suggested is to get some readings, thinking first before jumping the gun. You may have made fine points in other aspects of China, but certainly have not in the department of economics.

July 25, 2005 @ 7:11 am | Comment

That’s easy. Read the guy’s last comment. Hehe.

My thought was why beat up on someone when it is not necessary. Why not engage the person to explain him/herself instead of telling them to buzz-off.

July 25, 2005 @ 8:07 am | Comment

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