You commonly hear that Chinese economic data is a lie, and that it’s manipulated to look better than it is.A recent article in the NYT fleshed this idea out, saying that the data out of China was making the depth of the slowdown.
In a note out this week, Deutsche Bank’s Jun Ma wrote:
Nervous investors from Brazil on reading the article told us “it was like a bomb being dropped here, and doubts about China’s outlook have never been so great”. The article obviously had an impact but we think its claim is ungrounded.
In fact, the data might be totally opposite:
To the contrary, we believe there are several reasons why recent yoy IP (industrial production) growth rates have been (marginally) understated: 1) China’s IP data published by the National Bureau of Statistics (NBS) only covers companies with annual revenue of more than RMB20m. Given that most heavy manufacturing firms (which perform worse than the overall economy due to the ongoing investment-led deceleration) are medium and large in size, the NBS tends to exaggerate the growth deceleration. 2) Direct electronic reporting of production data (from companies, rather than from local governments) to the NBS was implemented gradually from end Q1 this year. If there was a reason to believe local governments tended to overstate IP and other economic activity data under the old system, then the implementation of the direct reporting requirement should lead to an understatement of yoy IP growth in April and May (as there is now less over-reporting compared with a year ago).