Posted by Martyn
Simonworld asks if China’s economic boom has been more hype than reality. “China’s economic statistics are notoriously unreliable but most agree that China has been the recipient of huge amounts of foreign direct investment (FDI). Not according to UNCTAD:”
China claims FDI of $5.42 bn from US in 2002 while US says $924 mn, a variation of 83%. Adding a new twist to the debate over China’s awesome FDI figures, a recent Unctad report has said the numbers claimed by the country are far in excess of those reported by investors.
The discrepancy is visible in case of other investors as well. China says Hong Kong invested $17.86 billion in 2002. But Hong Kong says the amount is $15.93 billion. Again, Chinese data show that Japan pumped in $4.19 billion during the year, while Japan claims it invested $2.60 billion a discrepancy of 38 per cent.
For the last decade in particular, the Chinese government has turned ‘selling China’ into an art form. The government has successfully sold China as ‘the place to be’ for foreign investors. In exchange for access to the fabled ‘China market’ or their cheap and disciplined workforce, China has secured an enormous amount of technology that has enabled it to rapidly develop domestic industries which now compete directly with their former foreign investor owners and partners.
However, for the last couple of years, many commentators have pointed to cracks appearing in the unsustainble China economy. Economic growth itself naturally comes in cycles. China needs FDI now more than ever in order to maintain the momentum of economic growth and provide jobs for its bulging workforce. Are the government, therefore, resorting to gross exaggeration of their FDI figures in order to keep up appearances?
1
By dylan
ROTFLMAO!
Of course the MofCom is lying. It is well practised. For instance, Commerce reports actual foreign direct investment stood at $28.56 billion in the first half, calling this a 3.2-percent year-on-year slip. Direct comparison to the figures Commerce announced back in 2004 for the first half of 2004 shows a 15.7-percent drop. The obvious explanation is another of China’s famous, unannounced data changes, where last year’s base number has been revised down, except ministry officials still brag about the record FDI in 2004. And report those inflated figures to the UN, IMF, etc.
October 3, 2005 @ 1:54 am | Comment
2
By ACB
I feel I need to pose one question here “What about ‘black’ investments”?
Is China counting bribes, the sale of weapons and illegal technology, and off the books investment made through money laundering. None of these things would figure on the books of forign countries, but would figure on China’s books. I could easily imagine there being a few tens of millions of dollars (at least) being laundered out of America and by Americans using off shore tax havens.
October 3, 2005 @ 3:11 am | Comment
3
By Brian
Fair enough point by ACB. In addition to black investments, there is also the hot money that’s been quietly slipping into china for years. Now that China has started re-valuing the yuan (it will continue to allow it to adjust upwards as the trade deficit with the US is becoming too large to explain away with more chinese bullshit) then hot money will continue to flow into the country.
This accounts for astonishing amount of so-called fdi. Does anyone have the latest hot money estimates?
On the subject of lying…
Q: how can you tell when a mainland chinese is lying?
A: Their lips move.
October 3, 2005 @ 6:21 am | Comment
4
By Brian
Boom boom!!
October 3, 2005 @ 6:22 am | Comment
5
By Martyn
Solid points in all above comments. Black investments? Definitely. Hot money? Of course. Local govts exaggerating their local figures? Without a doubt.
I take the view that it’s probably more a question of local figures being exaggerated right across the country and Beijing not delving too deeply into them but preferring to maintain them in order not to dull the gloss on China’s continued boom.
Brian also touched upon a very relevant point, i.e. economic growth comes in cycles. This a stark fact and no amount of FDI or Beijing ‘spin’ can alter that. China’s last slow down was 1997-8 (even though they hotly deny it). Economic growth cycles last between 1 and 10 years and, if I remember correctly, about 6 years is the average.
Therefore, China is way beyond time for a natural economic slow down. Also, the FDI figures for 2004 were quite incredible – and IMPOSSIBLE to sustain. HOwever, according to this years figures, FDI is only showing a decline of a few percent. Something, somewhere is very wrong.
October 3, 2005 @ 7:58 am | Comment
6
By Von
Can you tell me what year Peking became known as Beijing??
October 3, 2005 @ 8:14 am | Comment
7
By Martyn
Hi Von
It never actually ‘changed’ so to speak. I think that French missionaries first coined the name “Peking” in the 17th century but that in itself was a foreign interpretation of the Mandarin name “Bei3 Jing1”. In 1949, the communists offically changed the name from KMT-named Beiping (northern peace) to Beijing (northern city) and when the Pinyin system was established just after, Beijing became the offical name.
However, some misguided fools maintain that the word “Peking” is somehow racist, like “Canton” for Guangzhou. This couldn’t be further from the truth. For example, Peking University’s official website uses the word “Peking” and the official flight code for Guangzhou is “CAN” for Canton.
Therefore, it never really changed, it just evolved with the communists and the Pinyin system.
October 3, 2005 @ 8:26 am | Comment
8
By dylan
Martyn,
if you’re only talking about FDI, then your point about local governments as opposed to the central government intentionally misleading people is off the mark. You see, the “official national” FDI figures are already far less than those you would arrive at by adding up the claimed FDI of each province. The lying is at both levels, as my example showing the discrepancy between what the national officials claim was only a three percent drop in first half FDI compared with that in 2004 indicates by the simple method of bothering to check what MofCom announced last year was the total FDI in the first half. As I said, basic arithmetic shows that the drop in first half FDI this year from last (using national figures) was more like 15% i.e. fives times greater than that admitted by MofCom. So either the figures MofCom announced in 2004 have subsequently proven to be wrong (in which case the continued claims that China received record FDI in 2004 are blatant lying) or the ministry is lying about the drop in FDI this year.
My basic point would be that, much like GDP growth figures, the statistics are unreliable and should not be used or quoted without heavy caveats. I would add that even just looking at trends is likely to be pointless.
October 3, 2005 @ 2:35 pm | Comment
9
By New Economist
Are China’s FDI figures fudged?
China’s economic statistics are notoriously unreliable, but most agree that China has been the recipient of huge amounts of foreign direct investment (FDI). But not according to the UNCTAD World Investment Report 2005, which reported that China came th…
October 3, 2005 @ 4:07 pm | Comment
10
By ZHJ
I think China is trying to play down its economic growth instead.
“Q: how can you tell when a mainland chinese is lying?
A: Their lips move.”
I don’t think that is funny. It insulting to mainland Chinese.
October 3, 2005 @ 4:27 pm | Comment
11
By richard
Ivan, don’t be hurt, but I do have to agree with ZHJ on this one. Please don’t post blanket insults against any group of people (except neoconservatives and pro-Intelligent Design evangelicals, of course).
October 3, 2005 @ 5:35 pm | Comment
12
By GWBH
Re: Peking vs. Beijing. Unless I’m mistaken Peking is the Wade-Giles transliteration of the name of the City in question. If you use the pronunciation rules of Wade-Giles you wind up pronouncing the name properly: Beijing.
QED
October 3, 2005 @ 9:12 pm | Comment
13
By GWBH
Lies, damn lies and statistics.
Revising economic data is not uncommon, almost all countries do it especially where conclusions are based on estimates revising the data once all information has been collected is standard practice. Also it is not usually broadcasted very loudly.
China’s FDI numbers are suspect to say the least. The FDI calculation includes “roundtripping” i.e. SOE or other funds that are sent out of the country then brought in so a Sino-Foriegn JV can be set up and tax benefits enjoyed.
Discrepencies between two countries accounting for FDI can explained by a difference in methodologies used. For example Chinese military spending does not include R&D of new weapons systems or pensions paid out to retired personnel while the US military spending calcualtion includes both the above items. Neither methodology is wrong but when comparing the two they must be reconcillied.
The point of the above is aimply looking at a number without analysing how it was generated yields little useful information.
Money from weapons sales will not be calculated towards FDI, the profit may appear somewhere in the foreign reserve calculation.
The hot money that flows in China has always confused me since capital flows into China are simliar to a lobster trap: easy to get in; hard to exit. A lot of the hot money has flowed into real estate in China, presumably the “investors” are hoping for a double lift from the increase real estate prices and any potential upward revaluation in the RMB. Of course since the secondary market for real estate in China is underdeveloped (to be polite) the lift hoped for from the increase in r/e prices will be offset by the dumping of loads of poorly constructed housing into a saturated market.
Don’t forget the difficulties involved in title transfer, deed tax, business tax, etc, etc. will all eat away at the profit. And I haven’t even mentioned the usuarious fees charged by r/e brokers here.
Any benefit from an increase in the value of the RMB will probably be effectively mitigated by SAFE, not via lower exchange rates but more likely by making it difficult to get the money out of the country if it is allowed to be exchanged from RMB to USD/Euro etc.
I’m expecting tears from a lot of the hot money speculators. In my opinion a far better way to gamble on a upwards swing in the RMB would be to purchase RMB non-deliverable forwards in Hong Kong. But derivatives are not for the faint of heart.
October 3, 2005 @ 10:31 pm | Comment
14
By ACB
VON
Interestingly, if you watch a Chinese film that has been translated by a certain company or two they still use Peiking, for example, the columbia vesion of crouching tiger hidden dragon uses Peiking on its subs.
You can tell if a government official is lying if he says something different from what I say.
October 4, 2005 @ 2:17 am | Comment
15
By John
Very useful site! Excellent content, nice design.
October 22, 2005 @ 2:10 pm | Comment
16
By John Rise
Very useful site! Excellent content, nice design.
October 22, 2005 @ 11:56 pm | Comment