China's Official Data Mask Severity of Slump

AP JOE McDONALD (合眾社), 02/06/09

BEIJING) — It is China's disconcerting secret: Its

economic slump is much deeper than official data show.

The government says the economy grew by 6.8 percent in

the final quarter of 2008, but that is based on an outdated

system that measures growth against the same period a

year earlier.

Compared to the previous quarter, the method used by

most major economies, growth was as low as 1 percent

and possibly zero, economists say.

"We sharply decelerated in November and December,"

said Standard Chartered economist Stephen Green.

"There are no clear signals we have accelerated."

If China's economy is indeed barely growing, that would

dash hopes China, the world's third-largest economy,

might drive the world out of recession. It also means

communist leaders face a tougher challenge than

outsiders might think as they scramble to stem a flood of

job losses and ignite a recovery.

Other Asian economies such as Japan and South Korea

are already contracting. Beijing says there are signs its 4

trillion yuan ($586 billion) stimulus launched in November

is taking effect. But its data might be giving companies

and investors an overly positive picture of its current

health.

Other countries such as the United States and Japan

report gross domestic product growth by comparing each

quarter with the previous quarter. That requires more

number-crunching to adjust for seasonal differences but

quickly reveals changes in performance.

The gap is well known to private sector economists, who

try to estimate China's quarter-on-quarter growth based

on skimpy government data.

Fourth-quarter expansion from the previous three months

was "close to zero," said Ting Lu, a Merrill Lynch

economist. Green said his early estimate showed it was

"basically zero," though he raised that to 1 percent after

more calculation. Still, he said, growth was unlikely to

revive in the quarter through March.

That would be more in line with indicators that show

China's exports and manufacturing shrinking and

weakness in investment and consumer spending. The

government says at least 20 million migrant workers have

lost their jobs.

JP Morgan gave a more robust estimate of 1.5 percent

quarter-on-quarter growth. But its figures also highlight a

sharp decline: That rate is just one-tenth of the 15 percent

quarter-on-quarter growth the bank says China achieved

in early 2007.

Recent numbers suggest that China's economy may be

regaining some momentum. A key indicator of

manufacturing improved in January, suggesting the slump

may be bottoming out.

For decades Chinese economic data was thought to be

heavily massaged.

Local leaders were accused of sending Beijing phony

growth figures to make themselves look better. The

government was accused of manipulating the final

numbers to show it was achieving its goals. 

Today, the Cabinet's National Statistics Bureau is

regarded as professional and honest but is struggling to

keep up with China's rapid economic evolution. Its small

staff repeatedly revises past growth estimates as new

data come in.

It was only in 2005 that booming service industries such

as restaurants were counted in economic output. That

forced NBS to revise a decade's worth of growth figures.

But only annual numbers were revised, not those for each

quarter, making it harder for analysts to make historical

comparisons.

"China's statistics system is really in a mess," said Lu.

"It's extremely difficult and close to impossible to calculate

the quarter-on-quarter growth rate in China."

The statistics bureau's boss says it wants to create a

reporting system like those of other countries.

"We are doing research right now on setting up this

system," Commissioner Ma Jiantang said last month,

though he gave no timetable.

Last month, the bureau made the surprise announcement

that it was raising 2007's annual growth rate from an

already stunning 11.9 percent. That meant China

surpassed Germany that year to become the third-largest

economy after the United States and Japan -- a milestone

that went undetected at the time.

For 2009, forecasts of full-year growth are as low as 5

percent -- the best of any major country but China's

weakest in nearly two decades.

http://www.time.com/time/world/article/0,8599,1877526,00.html

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