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This is not a figure, but a bombshell. Xiang Songzuo probably knew what he was doing when he told his audience that China’s growth was actually four times weaker than what the authorities claimed.
By doing this, Xiang reignited a sensitive debate about the credibility of official Chinese statistics among investors anxious about the slowdown in the world’s second-largest economy.
The senior scholar from the prestigious Renmin University in Beijing claimed that the real GDP growth for 2018 was just 1.67%, which was considerably lower than the official target of 6.5%.
In an alarmist speech delivered last month, Xiang said that this explosive data was included in a confidential report from a renowned official research institute, but declined to name the institution.
“The real economy in China is in a sorry state,” the senior fellow at the Centre for International Monetary Research in Renmin, said.
He then predicted an era of “turbulence” unseen in four decades, leading the charge against President Xi Jinping’s central government agenda.
The comment immediately spread on social media before being swiftly censored. Some senior economists based in the country, who believe China’s growth is indeed slowing at a faster pace than expected, viewed the controversial figure with skepticism.
“We should not take that number as a serious one. It comes from an economist who apparently is very critical of the situation. Our expectation is 6.3% growth for 2018 and that is not necessarily good news,” Alicia Garcia Herrero, the chief Asia economist for Natixis, the French corporate and investment bank, in Hong Kong, said.
Last month, China’s exports dropped 4.4% compared to the same period in 2017. These figures were the lowest since 2016, fueling concerns among investors that the country is heading for a hard landing.
Still, Xiang’s bold claim has sparked an ongoing debate about the credibility of data published by China’s National Bureau of Statistics (NBS), which are followed avidly by markets around the world. Many analysts question the accuracy of the numbers put forward by the government and collected in the world most populated country.
“We cannot trust official statistics. There are no reliable official data available which is a real challenge to assess the state of the economy,” Xie Guozhong, an independent economist based in Shanghai, said.
Even Premier Li Keqiang admitted privately that he did not rely on official GDP data to get a proper sense of the country’s economic activity, according to a US diplomatic cable revealed by Wikileaks. During a conversation with the US ambassador in 2007 when he was head of the Communist Party in Liaoning province, Li explained that he looked instead at three other key numbers. They were electricity consumption, railway cargo volume and banking loans.
Known as the “Li Keqiang Index,” it is considered one model by analysts and economists assessing the health of China’s economy.
“Electricity consumption is a more credible source. Yet you should not trust the total national figure but look at the production of each power plant,” Xie cautioned.
The ongoing transformation from an export-driven manufacturing base towards a consumption-led economy in China is also complicating data mix. Domestic consumption contributed to 77.8 % of China’s growth in the first quarter of 2018, according to the NBS, indicating that consumers are the new economic driving force.
The e-commerce giants, such as Alibaba and rival Tencent which owns the ubiquitous Wechat messaging app and its mobile payment system, are well positioned to assess the real spending power of consumers.
But those companies tend to keep precious data close to their chests, although they have to cooperate with the government.
Needless to say, economists have to rely on other types of data in order to assess the economy. “To get a sense of the slowdown you have to look at real estate and car sales, which respectively account for 13% and 7% of the GDP,” economist Xie said.
That is worth more than exports to the United States, which are supposed to represent only 6% of China’s GDP. “Both sectors have experienced a slow down in 2018,” Xie added.
For the first time, the world largest auto market witnessed a drop in vehicle sales last year, illustrating the depth of the downturn. As for the real estate sector, it may even face “a year of recession in 2019,” according to the investment bank China International Capital Corp (CICC) in a report published last autumn.
Against this backdrop, it has become increasingly challenging to assess the overall picture of GDP growth. To add to the dilemma, the country is divided between well-developed coastal regions and less advanced but dynamic western provinces.
Overall, many China-based economists believe the actual GDP number is below the official figure, with one source in Beijing claiming it was in a “range of 4 to 5%.”
“Our China Activity Proxy (CAP) points to a slowdown to near 5% growth in November. One striking feature of the November data is how consistently weak it has been, with property the solitary bright spot,” Julian Evans-Pritchard, the senior China economist at Capital Economics, said in a note.
“In addition to the CAP, growth of industrial output, fixed investment, retail sales, exports, imports and both official PMIs all weakened,” he added.
Amid trade tensions with the US, investors’ scrutiny of China’s data will only increase in the next 12 months. Yet some economists have downplayed the importance of exact GDP figures, stressing that trends are more important indicators than the real scale of the growth.
“There is always some data massaging but the key is not the level but the change, which is indeed a deceleration,” Garcia Herrero at Natixis said. “[This] is bound to continue but probably more moderately than the market expects thanks to the massive stimulus [measures].”
The French corporate and investment bank forecasts 6.1% growth in 2019, which is far more than Xiang’s bombshell for 2018. Yet, it appears, no one is rejoicing.