‘There are three kinds of lies…lies, damn lies, and government statistics’
We may need to update this famous quote, attributed to 19th century British Prime Minister, Benjamin Disraeli…
Because there’s a fourth kind of lie: ‘Chinese economic data statistics’ created by the Chinese government.
A chasm has grown between on-the-ground reports, and Chinese government statistics. Either professional findings are wrong, or China’s government is massaging the numbers. Take your pick.
Chinese Bank Lending Statistics
A few weeks ago we had a reliable report that Chinese bank lending had fallen off a cliff in the first half of May.
This was backed up by my contact at a major investment bank, whose colleagues had just spent a few weeks on the ground. Chinese businesses are nervous about China’s economy, so they aren’t borrowing.
They don’t care that the People’s Bank of China just cut rates for the first time in four years. The rate is irrelevant — they just don’t want to take on any debt when the Chinese economy is slowing down so rapidly.
So I expected the May bank lending number to be a doozy…
But last night it came in at 793 billion yuan.
That’s the third highest figure in the last 2 years.
Chinese banks – third strongest month of lending since start of 2010
That’s a huge amount of lending. It’s up 16.3% on last month. And you can see from the chart a continuation of the steady trend of increasing bank lending that we have seen in the last few years.
This is how the Chinese government likes to stimulate the economy. The banks are not responding to market forces — they are responding to instructions from the government.
If we are to believe these numbers…who’s borrowing this much?
Most of it seems to be the government’s pet infrastructure projects, such as expansion of the rail network, new power plants, irrigation projects and so on.
So much for China moving to a consumer-driven economy this year!
As long as the government needs to run around pulling on levers and pressing buttons to keep things ticking along, the private sector will be rightly nervous.
All that is happening is that the government is instructing the banks to lend, and the government is putting its pet projects forward for loans. There were rumours a few weeks ago of a two trillion yuan stimulus package, but this forced bank lending is just stimulus by another name.
Chinese Manufacturing Statistics…
A Dodgy Set of Numbers?
A Dodgy Set of Numbers?
When it comes to dodgy Chinese statistics, China’s official Purchasing Manager’s Index (PMI) has been close to the top of the list. Since late last year, the Chinese government has told us that the PMI has been above the magic 50 level, suggesting Chinese manufacturing is on the up.
Fortunately, we also have an alternative number from HSBC, looking at roughly the same thing. Since the end of last year, in fact for the last 12 months, HSBC’s index has been going the other way.
HSBC (red) tells a different story to Chinese government (blue) about manufacturing
But after doing its own thing for six months, the China number came back to earth quite suddenly last month. This is a telling sign that the official China figures are a bit suss, and that HSBC have been getting it right all this time.
The bottom line is that the Chinese government’s economic data statistics should be taken with a pinch of salt. Or make it a bag, for good measure.
This makes things hard. China is still Australia’s biggest customer, and everything from commodity prices to the value of a dollar hang off what China is up to.
So what indicators are we supposed to use?
For one thing, it means reports from analysts and journalists on the ground in China are more valuable than ever.
But with statistics, we can really only use what we get.
You just have to read the data with a sceptical look on your face!
Dr. Alex Cowie
Editor, Diggers & Drillers
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