Sunday, April 22, 2012

Can China's official economic numbers be trusted? Reality on the ground seems much worse.

Here is interesting interview with Patrick Chovanec (professor at Tsinghua University's School of Economics and Management in Beijing, China). Dr. Chovanec points out that the official numbers for inflation, the GDP growth, and corporate earnings may all be misstated to look materially better than reality. When he brings up a number like 4% GDP growth, the Bloomberg reporter nearly has a stroke.

Chovanec writes about the reliability of China's inflation numbers in this EconoMonitor post:
Last summer, for instance, the Chinese government dumped a big chunk of its 220,000-ton strategic pork reserves onto the market. That helped ease prices, but it also lowered the profit incentive for farmers to raise and supply hogs, which could lead to shortages and/or higher prices in the long-run. The government fined Unilever for talking about raising soap and detergent prices due to soaring raw material costs. Although it later allowed those price hikes to go forward, the government leaned heavily on both Chinese and foreign companies to avoid raising their prices. Such practices continue. Just last week, the NDRC pressured two Chinese cooking oil producers into postponing a planned price increase for at least two months, and called Nestle in for “consultations” over a recent increase in the price of its baby formula products.
It's not that China is necessarily "cooking" inflation growth numbers, but these policies and pressure tactics artificially and temporarily suppress inflation, making the numbers appear better than they really are.
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