The Chinese economy has been slowing down not only worse than market have been expecting, according to official data. The problem is, of course, the economy has probably slowed more than official data suggest.
We have already made this point before, with anecdotal evidence and indirect gauges of the Chinese economy pointing to more severe slowdown than the official data suggest. And even though one may insist that the Chinese economy has not hard landed because official data suggest that GDP growth remains above 7%, the economy has indeed hard landed as far as large number of Chinese companies and the people they employ are concerned. Yesterday’s miserable PMI data, which is “just awful” according to Wei Yao of Société Générale, add to the gloom.
The Federal Reserve Bank of Dallas wrote a little paper, and conclude that China’s slowdown may indeed be worse than official data suggest. Essentially, Janet Koech and Jian Wang there are raising some doubts about the reliability of Chinese data (which we all doubt on a daily basis).
The authors there looked at electricity consumption and industrial production data in 2011 and 2012 year-to-date, which correlated with industrial production strongly. They have also fitted trend lines over 2011 data points and 2011 & 2012 data points. The chart below shows that when data points from this year is added, the trend line shift quite significantly.
Photo: Dallas Fed
Under 2011 trend line, if industrial electricity consumption was flat on a year-on-year basis, industrial production would increase by about 5%. However, this does not hold with 2011 & 2012 trend line: if industrial electricity consumption was flat on a year-on-year basis, industrial production would increase by about 7.5%. So it seems that each unit of increase of electricity consumption produce a significantly higher increase of industrial production in 2012 than in 2011. And that looks suspicious.
Of course, using just 2 years of sample is not going to be very accurate, and it is not really painting a much clearer picture of Chinese growth than the official data. Nevertheless, this does not help for those who insist that Chinese data are accurate (of which there is only one, which is probably the National Bureau of Statistics themselves, who emphatically deny that their data quality is bad).
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