Another Chinese Fib: 6.1% Growth
Gordon G. Chang, 04.22.09, 12:01 AM EDT
On the economy, Beijing fakes the facts.
On April 16, Beijing's National Bureau of Statistics announced that the Chinese economy grew 6.1% in the first quarter of this year. Analysts around the world hailed the number as "encouraging" and said it was a sign that the worst had passed for China. "The recovery has begun," declared Ken Peng of Citigroup.
Not so fast, Mr. Peng. In reality, it will take months to determine what really happened during the first three months of this year, but the gross domestic product figure appears much too high when we look at other statistics for the same period. In short, Chinese officials, after a brief flirtation with honesty in the beginning of last year, are evidently going back to fakery when it comes to the production of economic statistics.
As an initial matter, it would help if Beijing's numbers were internally consistent. At a time when China was supposedly chalking up robust growth, other indicators were pointing downward. Exports, for instance, were collapsing. They dropped 17.5% in January, 25.7% in February and 17.1% in March.
Consumer spending? Beijing said retail sales were up 15% in the first quarter of this year. Even if that is true, these sales are by no means reflective of consumption's effect on the economy. First, government voucher programs, which increased sales, were designed to move previously unsold inventory and therefore had relatively little effect on last quarter's GDP.
Second, imports fell during that period. Some of that decline resulted from manufacturers importing fewer raw materials for exports. Yet imports dropped more than exports, a sure sign that China's shoppers were buying markedly fewer foreign goods and a possible indication they were not buying much at all.
Third, declines in the Consumer Price Index of 1.6% in February and 1.2% in March reveal fundamental weakness in consumer demand. And on top of this, Beijing has not released key household expenditure statistics, thereby casting doubt on its recent contentions of strong retail sales. So consumption, if it grew at all during the quarter, probably had only a marginal positive effect.
The third leg of the Chinese economy is investment. Last November, the State Council, China's cabinet, announced a $586 billion spending plan to lift faltering growth. Pursuant to the program, the central government, state enterprises and state banks have been mobilized. So far, massive amounts of cash have been forced into the state economy, especially by the banks. Unfortunately, some of the state bank cash has ended up in domestic stock markets, where it had little effect on first quarter GDP.
Of course, most of the spending has fueled fixed-asset investment, which Beijing said jumped an impressive 28.8% during the quarter. We shouldn't be surprised that increased state spending makes announced GDP look robust. The National Bureau of Statistics has yet to develop adequate sampling techniques to measure the private sector, which by all accounts is performing worse than the state component of the economy these days.