Back in October, I laughed off the latest China GDP data as utterly fabricated.

As it turns out, I was not the only one. China expert Gordon G. Chang (author of The Coming Collapse of China) is more than skeptical — he has the data to question much of China’s growth miracle.

Spoiler alert: Its been wildly exaggerated:

“Beijing, in the 1990s, ordered factories to churn out goods in periods of low demand, and there are indications that officials are resorting to this tactic now. While optimistic analysts point to astounding car sales–up 70.5% in July, 94.7% in August and 83.6% in September–there are reports that central government officials have ordered state enterprises to buy fleets of vehicles and that these businesses are storing them in parking lots across the country. These stories are as yet unconfirmed, but they are consistent with statistics showing that gasoline sales have been flat this year–up only 6.4% in August, for instance, and sliding since then from all indications. So here’s another question: At a time when economic activity is supposedly rising at a quick pace, how can large increases in passenger vehicle sales not be accompanied by corresponding surges in fuel usage? (emhasis added)

The answer is that Beijing’s statisticians have gone back to their old tactic of making up figures to support the Politburo’s predictions. The Chinese economy is probably growing due to state-led investment, but it cannot be doing so at the rates claimed. Wen Jiabao’s stimulus plan is, above all, grossly inefficient. For all the money he is pouring into the economy, the country is getting a small return in economic output. That’s why Premier Wen, despite the high growth numbers he’s been reporting, consistently refuses to end his stimulus program. If his numbers were real, he would be worried about overheating. But he’s apparently not.”

Gee, whoever would have guessed that a Totalitarian government would lie in its official data?

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Previously:
Who Believes China’s ‘Bernie Madoff’ Data? (October 22nd, 2009)

http://www.ritholtz.com/blog/2009/10/who-believes-chinas-bernie-madoff-data/

Source:
China’s 8.9% Growth? No Way
Gordon G. Chang
Forbes, 10.23.09

http://www.forbes.com/2009/10/22/china-growth-gdp-economy-opinions-columnists-gordon-g-chang.html

Category: Data Analysis, Economy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

37 Responses to “More on China’s Faux GDP Data”

  1. rob says:

    Those poor back assward people, it’s a shame they can’t just fudge it to the barely believable like we do. Ha!

  2. HarryWanger says:

    I’m shocked every time I hear some talking head refer to “the China growth story” as a great indicator of global health. Who in their right mind would ever believe anything coming out of that government? Sure there is obviously spending/stimulus and some sort of “growth” but the truth of the numbers we’ll never know. BTW: just because copper continues to rise on a weak dollar doesn’t mean there’s crazy growth out there. When you can get something cheap, you get it. You’ll need it at some point so you stockpile at low prices. Another “growth” indicator that I find ridiculously repeated as gospel.

  3. BostonObserver says:

    Hmmm… I am sure there is lots of exaggeration going on, but the gap between vehicle sales and fuel consumption isn’t inherently unbelievable. If there is a base of, say, 60 million cars in the country and the annual run-rate for new sales was 12M, that’s 1M per month additive. If monthly sales grew by 70%, that’s 1.7M incremental on the ~60M base, or an increase in the total fleet of just 2.8%. Regardless of the baseline assumptions, an increase in monthly new car sales would drive a total fleet growth number an order of magnitude below that. And you would expect gas sales to increase in line with total fleet size, right?

  4. trandolph says:

    Gee, whoever would have guessed that a Totalitarian government would lie in its official data?

    Does that suggest that the US government is totalitarian? Subversives abound.

  5. Bob_in_MA says:

    I was just going to make the same point BostonObserver did. Added to that, a disproportionate number of the sales this year were smaller cars because of government incentives. Plus there has to be a certain number of cars headed to the junkyard every year.

    China may well implode, but if it does I think it will have more to do with there being no one left foolish enough to buy yet another empty condo in a building of empty condos than the accuracy of their auto sale numbers.

  6. call me ahab says:

    “how can large increases in passenger vehicle sales not be accompanied by corresponding surges in fuel usage?”

    drive half as much with twice the cars?

    mystery solved

    on another note- if anyone out there has been to Beijing- well you know then it is like the new Cleveland- pollution abounds- won’t be long before their river’s catch fire-

    http://en.wikipedia.org/wiki/Cuyahoga_River

    “China -the New America”

  7. ashpelham2 says:

    The thing that stands out to me is how unbelievable BELIEVABLE the numbers might be. Bear in mind the sheer population of China, well over 1 Billion people. The world has never known an economy or a government of that size. The former USSR probably never approached 300 million people during it’s heyday. I don’t believe they have that many now.

    The vehicle sales numbers do sound crazy. Explain, please someone, what might happen if the USD suddenly began a prolonged and sharp strengthening.

  8. cortezj29 says:

    @call me ahab – The view outside my office window is the Cuyahoga River. No fires these days. Just gets muddy and full of branches and logs after a hard rain.

    on another note- if anyone out there has been to Beijing- well you know then it is like the new Cleveland- pollution abounds- won’t be long before their river’s catch fire-

    http://en.wikipedia.org/wiki/Cuyahoga_River

    “China -the New America”

  9. trandolph,

    interesting Q: , see http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=PATRIOT+Act+Police+State
    “…If the Patriot Act is constitutional and badly needed, as its proponents swear, why were sunset provisions included at all? If it’s unconstitutional and pernicious, why not abolish it immediately? All of this nonsense about sunsets and reauthorizations merely distracts us from the real issue, which is personal liberty. America was not founded on a promise of security, it was founded on a promise of personal liberty to pursue happiness.

    One prominent Democratic opined on national television that “most of the 170-page Patriot Act is fine,” but that it needs some fine-tuning. He then stated that he opposed the ten-year reauthorization bill on the grounds that Americans should not have their constitutional rights put on hold for a decade. His party’s proposal, however, was to reauthorize the Patriot Act for only four years, as though a shorter moratorium on constitutional rights would be acceptable! So much for the opposition party and its claim to stand for civil liberties…”
    http://www.lewrockwell.com/paul/paul265.html
    http://www.police-state.net

  10. call me ahab says:

    cortez-

    nothing against Cleveland my man- my comment is that China is like America was 40 or 50 years ago w/ no regard for the environment-

    not as easy to get away with that here nowadays- thankfully

  11. farmera1 says:

    Suppose things have gotten so bad in China that there is an equivalent to the Shadow Government Statistics web site.

    http://www.shadowstats.com/alternate_data

    Naw no way, besides it wouldn’t be allowed, right. Besides what country would just discontinue gathering economic information, oh that’s right the US quit publishing M3, because no body was interested.

    Sorta like the pot calling the kettle black.

    “China -the New America”, no I’d say America the old China.

  12. Thor says:

    But, BUT – China is supposed to lead us out of this crisis!!!!

  13. newulm55 says:

    And you think our GDP data is not “faux” as well… I think I agree w/ Rothbard that government spending should be subtracted from GDP b/c it crowds out private enterprise.

    Our tax revenue is down 20% in most states, 10%+ unemployment, house starts keep dropping… and we are growing at a 3.5% annual rate. I think not it just another “fudge” job by the folks in charge.

  14. Thor says:

    This isn’t a contest Newulm55 – “who can cook their books the most”

  15. sinomania says:

    Barry, as I often as you point out how our own feds massage economic data (CPI, unemployment, etc.), I’m surprised you’d make so much of this. Gordon Chang has his own twaddel to peddle and the story about buying cars to store in lots is similar to the urban legend in the 70s of China critics that Chinese didn’t really own bicycles that the government just bought the production and stored them in warehouses and let the people use them when foreign visitors were around.

    Official statistics from the Chinese central government have always been questioned because they are less a matter of raw data and more about domestic politics. What Chang is describing is the complex game that the Provinces and independent Municipalities play with Beijing over finances. Most direct taxes in China go directly to Beijing. Distribution back to the provincial level is based on data points that get beefed up on purpose. It would be surprising if Gordon Chang doesn’t know this. More likely, it doesn’t fit his propaganda. Nor does it make for snappy headlines.

  16. nenmoonia says:

    While I don’t necessarily deny distortions in the official figures (and don’t be naive to think its only because China is totalitarian, check out the US figures), there are a lot of other reasons gasoline sales are not up proportionally.

    Anedoctally, I know for a fact that Beijing as an example has vastly increased their public transportation, put up lots of incentives to lower car driving, and even made a law that grounded 20% of cars every day. Yes, that meant you can only legally drive your car 4 days a week instead of 5. Those would help to prevent gas increases.

  17. Steve Barry says:

    If China collapses, they may ask for their money back…then we got a real problem.

  18. call me ahab says:

    SB-

    easily done- we’re making more every day

  19. Steve Barry says:

    @ahab…they may want REAL money back, LOL.

  20. bsneath says:

    newulm55 Says:
    November 19th, 2009 at 4:29 pm

    “Our tax revenue is down 20% in most states, 10%+ unemployment, house starts keep dropping… and we are growing at a 3.5% annual rate. I think not it just another “fudge” job by the folks in charge.”

    newlum, I have been having a difficult time reconciling those discrepancies as well. But I have not heard any economist question them so I am at a loss. The high productivity number would be a big part of the difference. But as BR posted a week ago productivity and therefore GDP can be distorted by imported content. Also, many are saying the 3.5% will be adjusted down by 1/2 – 1% in the next revision.

  21. Skeptical says:

    Robert B Reich wrote a good piece the other day. China, to maintain social stability, MUST create prosperity (even if it’s just a miracle). On the other hand, even if the conspiracy theory is true, the phantom production created this “wealth effect” (with rising stock market and real estate) certainly stimulates consumer spending. I have no doubt there’s a certain degree of fudging of data. If the Obama administration has no problem in fudging jobs “saved”, no doubt PRC would have no problem doing that in a much larger degree. Let’s just hope all these fudging do not create something that collapse too soon. Otherwise, lord have mercy on all of us.

  22. advsys says:

    Give me a break already! Our numbers are just as screwed up as theirs!!!!! We go about it in a different way but our government is no more striving for accuracy and relevance in our data as they are. Stop letting nationalism get in the way of understanding reality.

  23. danm says:

    They could be driving more but making less stuff for us so that could make fuel consumprion flat.

  24. F. Horne says:

    Yeah, China’s in real trouble. All they know how to do over there is make stuff and sell it to everybody in the world. Then they pile up all these dollars that aren’t worth a damn, so they have to trade them for oil concessions and commodities. Lying straight out about their GDP–they ought to do like we do and rig our numbers so that inflation doesn’t exist anymore, and that way they could book asset inflation as growth, just like we do.

    When they put on a stimulus, they use cash to fund it–can you believe that?? Whatever happened to good old debt? Don’t they know they could print money just like us?? It beggars belief.

    Plus they have this socialist/communist form of capaitalism, where every time a bank or big industry gets in trouble, all they have to do is call their buddies at the government and get some more money. Over here, when somebody screws up, they just go under–that’s the only way to have a real economy.

    They have zero innovation in their financial dealings. They never even heard of a CDS or swap, for crying out loud, til we sold them some. Their dumb banks only know how to make loans and collect interest and amortization.

    Next thing you know, they’ll be trying to make airplanes. Which is the biggest joke ever. Like they can get an airplane to market that’ll fly. Ha. Boeing will eat their lunch, as soon as Boeing figures out how to keep the wings on the 787, which should be real soon, because they’ve been working on a long time.

    China’s a joke.

    F. Horne

  25. bsneath says:

    China Will Have Own Bubble to Confront, Pimco’s Bill Gross Says

    http://www.bloomberg.com/apps/news?pid=20601009&sid=a.rxGk3cg9qA

  26. bmoseley says:

    before you believe what Chang says, take a look at his book. if you go to Amazon.com and look at the reader reviews of his book, you will see that he back’s up his comments with little or no facts. i’ve seldom seen a book get such bad reviews with consistent comments. 1 star.

  27. Joanne says:

    maybe the rich are buying their 5th and 6th cars….thus explaining the flat fuel consumption. Have u seen the growth in luxury stores? have you heard that their labour shortage issues in the provinces? This is the real data

  28. august says:

    Barry, you call Chang an china expert? you should first check his credit among other china experts or anyone who has some familarity with china. Chang is a junk. anyone investing using Chang’s judgement is doomed bandrupt, as Chang himself is.

  29. hue says:

    China and Madoff have the same accountants. China built its capacity based on US consumption, which was overstated due to excessive credit and debt. I guess those factories will still churn out goods to put in the trunks of those car fleets in parking lots. http://bit.ly/2CEKui http://bit.ly/WsRCk (video via nemo over at CR)

  30. jdmckay says:

    what sinomania Says @ November 19th, 2009 at 5:13 pm…

    I read Chang’s book around ’02. He clearly knows something of China. He also clearly has an ax to grind, and ignored the vast amounts of investment China has made in infrastructure/factories… and since then, energy.

    This post by Chang reads to me like he’s just scattershot making stuff up. Maybe he’s auditioning for Fox News.

  31. mdod says:

    Great stuff.

  32. flipspiceland says:

    Does everyone here think that Jim Rodgers is completely insane to move to China with his entire family, having written off the United States’ growth prospects/vs China’s?

    Doesn’t anyone think China with its atuocratic government, will run rings ar0und every nation in the world just thru the ability to avoid the gridlock that passes for government in a republic with a diverse population of 400,000,000 with a democratic form of government that has been sabotaged by lobbyists, and lawyers?

    Has anyone here actually been to China to see what is goin on in that country?

    Who here, including BR has seen China, spent time there in the last 10 years?

    Anyone?

  33. patfla says:

    That’s interesting (how China counts its GDP). I think just the other day I read the following from an expat in China on a nytimes blog.

    I mean, I save the url, but url’s expire and so I coped down the bit I thought most interesting:

    [name and location omitted, but an expat living in Shanghai]

    I wonder why Mr. Ross chose to overlook China’s immense internal
    deficiencies when he contributed his analysis of Chimerica. I
    live right down the street from the university he teaches at,
    Jiao Tong, and I as someone intensely interested in the Chinese
    economy and a voracious consumer of information regarding that
    subject I must disagree with much of what he said.

    Yes, the Chinese economy was better positioned to weather the
    financial storm – largely because it’s banks were strong and
    solvent, having purged themselves of most of their bad loans over
    the preceding decade. The banks – rather than the stimulus – have
    been the driver of China’s GDP growth over the past year, doling
    out trillions of rmb, much of which went to the construction of
    as-of-now useless factories and apartment blocks or ended up
    inflating the stock and real estate bubbles. So the banks have in
    effect mired themselves back in a position of weakness, as much
    of their lending they will never see again. From my office now I
    can gaze out at a massive new edifice of glass and concrete that
    was landscaped 6 months ago, yet has never been used. Who takes
    the loss on this building? The banks, though China will claim the
    GDP boost now and sort out the detritus later.

    So much of the GDP here is smoke and mirrors, artificially pumped
    up by constructing buildings that remain empty, or fleets of cars
    that sit idle in car parks so that the leadership can brag that
    they sold more cars than America. A strange feature of Chinese
    GDP calculation (and retail sale calculation) is that it counts
    toward GDP when it is sold from the factory to the business, not
    from the business to the consumer. So many here think that the
    government and SOEs have been hoarding goods in warehouses and
    claiming the GDP boost.

    China will have to deal with their profligate ways, just as
    America and Japan have had to deal with theirs. China, despite
    decades of close partnership with foreign companies, has been
    largely unsuccessful in creating their own brand or developing
    innovative products – even something like the Iphone, famously
    made by FoxComm in Shenzhen, is merely assembled there, with the
    high-tech parts shipped in from Japan, Korea and Taiwan.

    China better enjoy its brief moment in the sun as the recognized
    economic leader, because soon enough the growth rates will come
    down (easy money and excess goods can only mask the internal
    problems for so long), and she have to settle for more pedestrian
    growth and all the unique problems this entails for her.

  34. hue says:

    i only know of friends who have relatives who were missionaries in China. their kids are of college age, so they just moved back to the US, can’t go to college there. the kids are astounded at the consumption in the US. no way the Chinese will be able to consume all the products they manufacture for us.

  35. michaeld says:

    If China can grow at 9-10% per year, so can the US. This is the only way to get out of the current mess.

    The Fed must pursue maximum and vigorous economic growth at all costs. That will be the only chnace o solve the unemployment problem as well.

    admin
    ttp://invetrics.com

  36. michaeld says:

    Google is an amazing company. Itg has grown a lot and will continue doing so, as long as innovation is encouraged.

    Many companies can learn from Google’s model.

    http://invetrics.com