How Flawed Is China’s Economic Data?

China’s statistics bureau said that the rise in housing prices over the last year was 1.5%. The China Real Estate Association put the figure at 22%. “When I saw that [1.5 per cent] figure I was also skeptical and thought they had placed the decimal point in the wrong place,” Mr Gu told the Financial Times. “Even the statistics bureau admitted their calculation diverged significantly from the market reality.”

The measurement of Chinese real estate prices may be off by some amount because the value of property in the largest cities grows faster than it does in rural areas,.  But, the differences between figures given by the private sector and those issued by the government are too big to be ignored.

The Chinese statistical agency also said recently that inflation in the world’s most populous nation was up 2.7% in February. The figure was higher than the government would like it to be, but not so high as to set of alarm bells. National bank regulators believe that they can bring inflation down by choking off the supply of money to individuals and businesses. On paper that should work. But, if inflation is much higher than the government claims, shutting off liquidity will not arrest price increases overnight. Rampant inflation would indicate that there is already too much capital in the market and shutting down bank lending cannot adequately resolve a situation that may already be dangerous.

Any flaws in the numbers given by the central government for exports, imports, inflation, and bank lending raise questions about how well outsiders can gauge the core of China’s economic engine. That effects negotiations on the value of the yuan, the tariffs imposed on some Chinese goods, and whether the People’s Republic is actually consuming enough raw material and oil to affect inflation outside the mainland.

Beijing may have made a conscious decision to mask some of its inflation problems by releasing incomplete date, or even worse, misleading numbers. If that is the case, setting policy to curb bubbles in China will be compromised and the world may be caught by surprise when some of the bubbles burst. China’s economic situation may be much more unstable that the government lets on.

Douglas A. McIntyre