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It’s not novel to suggest that Chinese economic data can be a bit. . . funky. Especially when it comes to politically-sensitive stuff like headline growth rates.
Some see the hand of the CCP in this — discontinuing awkward data sets is hardly trust-building — while others mostly see an extremely rapidly growing, extremely large country where collecting GDP data is inevitably going to be complicated.
Unfortunately, Chinese GDP numbers seem to be becoming funkier, rather than whatever the opposite of funky is (less smelly? musically tighter? less inclined to “get down”?). Fortunately, there doesn’t seem to be anything nefarious at work in this case.
Take a look at the widening difference between the year-on-year GDP growth data and the number implied by quarter-on-quarter estimates.
The chart is from a Goldman Sachs report that examines the phenomenon. And as you can probably tell from the above chart, this isn’t necessarily a case of statistical shenanigans. Q-o-q and y-o-y discrepancies are fairly common, even in the US, and South Korea has also seen its margin of error grow since Covid.
But the widening gap between the different Chinese GDP data series is quite stark. So what’s up?
Goldman Sachs reckons it basically boils down to seasonal adjustments made by China’s National Bureau of Statistics to the quarterly numbers, regular revisions to its historical GDP estimates and Covid-caused “distortions” in collected data (the ONS can sympathise with the latter).
The investment bank’s analysts noted that discrepancies like this tend to be mean-reverting in the longer run. And despite big swings in recent years the divergence with four-quarter moving average is pretty minimal.
Goldman Sachs therefore doesn’t think this is cause for alarm, and reckons that the government’s growth target will still be manageable (after all, everything is managed in China):
— We see a possibility that NBS may revise down 2022 GDP estimates during the annual GDP final verification later this year by ~0.4pp owing mainly to the ongoing downward revisions to 2022 new home sales. Note new home sales volume during January-July 2022 was revised down by 9%. Any 2022 GDP downward revisions should mechanically boost 2023 GDP growth, all else equal.
— Incorporating July activity data and our high-frequency trackers for August, our Q3 GDP growth forecast (4.9% yoy) remains broadly on track, though it implies a slight sequential improvement in August-September. Further considering the likely moderation in inventory destocking in H2 vs. Q2, ongoing policy easing, and potential downward revisions to 2022 GDP estimates, we believe China’s “around 5%” GDP growth target this year is still achievable.
Further reading
— Country Garden is not a repeat of Evergrande, but it’s in the same hole (FTAV)
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