China’s PMI as a False Marker of Progress

Some economists believe that China’s government-issued data are flawed. Reuters recently published an article titled “China’s Economic Data (Still) Not Credible.” In it, the author reported:

There is a cottage industry that gains directly or indirectly from insisting that Chinese numbers are fairly accurate and far better than the bad old days of 15 years ago. But reasons for scepticism abound.

That cottage industry will grow as the debate over whether China is headed toward a soft landing or a hard one continues — if it is headed for a landing at all. Fortunately, most of what happens in the economy of the People’s Republic is available from sources other than the government there.

China’s agencies reported two pieces of data recently. The first was January PMI, which showed expansion in the sector. The figure was 50.5 against a consensus among economists of 49.5. And China Real Estate Index System reported that average home prices in the top 100 markets fell 0.18%. That is a large contrast to two years in which prices in some markets were up in double digits.

If Chinese data are flawed, either because its statistics collection is inadequate or there are sinister distortions, it is unimportant for several reasons. From the outside of the country, economists have a relatively good idea about what China imports and what it pays for those imports. Additionally, the picture of what the People’s Republic exports is gathered by virtually all of its trade partners. In other words, the measure of China’s economic fortunes can be taken from outside.

One thing that is certain is that China’s PMI, and probably its real estate values, will be damaged by the crippled EU economy. Whether that shows up in China’s figures is academic, no matter what the PMI data show. Exact accuracy of the figures is not important.

Douglas A. McIntyre