One of my hobby horses has been China's economy, and in particular the unreliable statistics used to steer the ship. I've created a China economy category to group together these posts*.

Jake van der Kamp again finds China's latest GDP doesn't add up:

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 Beijing. 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 [below the jump] 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.

The central government has been advised by the National Bureau of Statistics against introducing further economic tightening measures despite unexpectedly rapid growth so far this year. Despite reporting higher-than-expected gross domestic product growth of 9.5 per cent in the first six months of the year, a government economist said the bureau was predicting that the economy would slow.

The economist said nominal GDP growth, a figure not revealed to the public, was a more reliable indicator than the real-growth figure in the report, which the bureau adjusted for inflation and other factors. Nominal GDP growth had slowed markedly during the past few quarters, despite real GDP growth remaining relatively constant at close to 9.5 per cent.

You wouldn't even need a special Beijing calculator.

Related posts

- Invented the Abacus but can't add up
- Who to Believe
- Lowering the sites
- The numbers game
- Not adding up
- Seeing is not believing

* _{It's also because I'm sick of searching for them, seeing I often refer back to previous posts. Here's a handy tip for new bloggers: always use categories.}