How the Chinese government will manage the country’s slowdown without crashing is one of the most important topics on analysts’ minds, but underpinning the entire discussion is the assumption that we have good data to look at. According to Christopher Balding, professor at the HSBC School of Business, ESADE, there is no reason to believe the numbers coming out of China.
Unemployment rate in China
“When you simply make economic data up, of course the numbers are always going to look good,” says Balding. “For about ten years, Chinese unemployment has bounced between 4.1-4.3%. Now even accepting that Chinese unemployment has remained quite low throughout this entire time period, which in itself a dubious proposition, we expect more random variation than that.”
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Balding has recently published a paper titled “How Badly Flawed is Chinese Economic Data? The Opening Bid is $1 trillion,” so it’s clear that he thinks the Chinese government is releasing nothing more than rank propaganda, and that analysts are going on to make recommendations as if it were accurate. The paper focuses on the manipulation of housing price inflation by altering the base number, overweighting private homeowners relative to renters, and overweighting urban areas relative to urban areas. Taken together, Balding makes the case that economic data released by Chinese government officials has gone through multiple levels of manipulation to arrive at a predetermined value. With a GDP of around 7.3 trillion according to the World Bank, a one trillion dollar change, would reduce China’s GDP by about 13 or 14 percent.
China: Accusations painting an alarming picture
Anyone considering an investment in China should take these accusations seriously, since they paint an alarming picture. Or, rather, they destroy the picture we currently have of what’s happening in China and replace it with a question mark. Balding’s paper doesn’t deal with GDP directly, and it’s not clear how far China could massage growth numbers before they stop matching trends that analysts can determine on their own, but Balding believes they have already pushed them so far as to be almost meaningless.
“You continue to add up all these little ways that the NBSC is fraudulently manipulating the data and you arrive at some pretty big numbers. As the saying goes, a trillion here and a trillion there, and pretty soon, you are talking some serious money.”