Chinese Economics Thread

[Brumby]

They won't believe anything that comes out of China. They insist that China's growth rate is inflated. See below the article from CNBC. They want to shoot down the Chinese GDP growth numbers days before they come out. But their analysis is flawed for the reasons I posted above. They are looking at the old industries of China and say that its slowing down and then look at consumption saying its not picking up and comes to the conclusion that the economy is growing just 2,4%. But they are not looking at the new industries that are being created and that consumption is more than just buying stuff but its also about services like cinema's, restaurant's, HSR rides etc.

There are both the quantitative and qualitative aspects to the numbers. Whilst the number itself may continue to show that the GDP is at its lowest against the past 25 years, it is similarly important to understand the makeup of that number. China is making efforts to rebalance its economy and so it is important to look at the metrics in those areas whether the rebalancing is taking effect. As you said, there is a shift from the old to the new industries and so the focus of the conversation would be on what is happening there and their weightings in the GDP going forward.

Except that I see a massive economic and financial crisis coming for the world this year that could be bigger than the one of 2008. And they wan't to blame China for it.

I believe there is a concern that China has taken on too much debt to grow its economy in the recent past and the level of NPL's in the banking sector as reported is not representative. In a rising economy like in musical chairs, the problem is pushed aside but when the economy is insufficient to keep the music going, the effect of NPL's has a cascading effect not just on the Chinese economy but a rippling effect around the world.

 

[Blitzo]

Yes, one thing I've noticed in the last few months is that it has suddenly been much more accepted in mainstream media to accuse China of outright making up its economic numbers, and with more financial institutions suggesting it as well.

One real potential danger of this, is that markets may end up reacting negative to any Chinese economic numbers, if it becomes commonplace for everyone to believe that all Chinese economic numbers are made up, regardless of what the actual truth is.

I'm not entirely sure how these various financial institutions end up at their own GDP calculations nor do I know how China reaches its own either, so I think it is hard to say whether all parties are looking too close or not closely enough at old or new sectors.


I suppose one good thing about the "China is lying about its GDP growth" crowd is that this challenge cannot be left unmet for too long, because there will bound to be other financial players who believe China's growth rate actually is about what China says it is, and that it may cause the various financial players to more publicly compare notes about how they calculate GDP.
Furthermore, we will also know in a few years just who is making the mistake and/or lying -- the big difference in GDP growth rates that China is publishing and forecasting versus what some financial institutions are suggesting, means that we'll be able to see more firm economic indicators emerge in a few years, which will tell us just who may have been right.

It's also important to note that as of late last year, economic growth predictions for China from other financial institutions and some big institutions were still predicting growth in line with China's own.
from CKGSB's winter 2015 magazine:
View attachment 23716

Btw I recommend CKGSB knowledge to everyone here, if they're not aware of the site. Their articles and write ups and quarterly magazines on the Chinese economy and new sectors and their good grasp of international and domestic economic matters related to China are pretty unrivalled in my opinion

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[Brumby]

I suppose one good thing about the "China is lying about its GDP growth" crowd is that this challenge cannot be left unmet for too long, because there will bound to be other financial players who believe China's growth rate actually is about what China says it is, and that it may cause the various financial players to more publicly compare notes about how they calculate GDP.

As you said you don't know how China derives its numbers and so when there is lack of transparency there will always be a question mark over their veracity. For example, we don't know whether China has been consistent in measurement and in the components used. Likewise, I presume we are seeing discrepancies between institutions because of differences in methodology. The key in my view is consistency and the makeup and since we don't know either, I don't believe we will ever have a conclusion besides uncertainty.

Furthermore, we will also know in a few years just who is making the mistake and/or lying -- the big difference in GDP growth rates that China is publishing and forecasting versus what some financial institutions are suggesting, means that we'll be able to see more firm economic indicators emerge in a few years, which will tell us just who may have been right.

I don't think time will tell as long as transparency remains as per status quo. There will be discrepancies between the institutions and China's numbers and attempts will be made to reconcile them based on corroborative economic numbers to assess a picture of economic health but there are probably too many variables and gaps to conclude decisively. In my view, some of the doubts expressed on China's numbers might be due to the inability of these institutions to reconcile to key economic numbers.

 

[Blitzo]

As you said you don't know how China derives its numbers and so when there is lack of transparency there will always be a question mark over their veracity. For example, we don't know whether China has been consistent in measurement and in the components used. Likewise, I presume we are seeing discrepancies between institutions because of differences in methodology. The key in my view is consistency and the makeup and since we don't know either, I don't believe we will ever have a conclusion besides uncertainty.

A bigger question I'd like to ask, is how does any nation or any financial institution actually calculate GDP growth (or other such economic indicators) for each other, and in China's case, just how transparent or non-transparent is China's method of calculation compared to that of other nations.

I'd feel a lot more convinced if the financial institutions saying china is overreporting economic growth can point to a specific series of indicators and say that those are the ones which are having their numbers tweaked.

I don't think time will tell as long as transparency remains as per status quo. There will be discrepancies between the institutions and China's numbers and attempts will be made to reconcile them based on corroborative economic numbers to assess a picture of economic health but there are probably too many variables and gaps to conclude decisively. In my view, some of the doubts expressed on China's numbers might be due to the inability of these institutions to reconcile to key economic numbers.

Maybe. I do think that if over the next five years if growth between differing nations and institutions continue to be so different, we will begin to see more hard and more difficult to refute evidence suggesting one camp is correct or more correct than the other.

 

[Brumby]

A bigger question I'd like to ask, is how does any nation or any financial institution actually calculate GDP growth (or other such economic indicators) for each other, and in China's case, just how transparent or non-transparent is China's method of calculation compared to that of other nations.

Let's try not to deviate from the subject of transparency sufficient to assess as opposed to comparative transparency. If we cannot determine how the numbers are derived, the only option left is to assess how the numbers are trending and what does it mean overall.

I'd feel a lot more convinced if the financial institutions saying china is overreporting economic growth can point to a specific series of indicators and say that those are the ones which are having their numbers tweaked.

You would have to purchase their economic reports because that is the nature of their business i.e. to provide economic analysis.

Maybe. I do think that if over the next five years if growth between differing nations and institutions continue to be so different, we will begin to see more hard and more difficult to refute evidence suggesting one camp is correct or more correct than the other.

Don't agree. As is, whether the GDP is 6% or 7 % is meaningless unless placed against a number of economic scenarios and what their implications are.

 

[taxiya]

One does not spend millions or billions to gain control of mainstream news media without seeking to get a return on that 'investment'.
....
If you own the media and the politicians, it's easy to get the people to believe and do what you want yet still think it was all their own idea.

It's the propaganda in perfection.
Money => Influence = power.

 

[Equation]

BEIJING/SHANGHAI (Reuters) - A renewed plunge in Chinese stock markets has stoked concerns among global investors about the health of the world's second-biggest economy, but there is little evidence that the outlook for China has darkened dramatically in recent weeks.

China's economy lost steam steadily through 2015 and economists are split over when they expect it to bottom out. Auto and property sales are showing signs of life, however, and few are predicting the kind of "hard landing" that the recent tumble in share prices might suggest.

"I think there is little connection between the falling stock markets and the real economy," said Shen Lan, an economist at Standard Chartered in Beijing. "Actually, economic indicators in November already showed the economy gained more momentum."

China has topped investors' concerns at the start of 2016, with a 10 percent slide in Chinese equities last week triggering a broad sell-off in riskier assets. China's benchmark share indexes fell a further 5 percent on Monday.

Manufacturing and investment, the twin engines of China's breakneck growth over three decades, have been suffering a prolonged slowdown as Beijing attempts to guide its economy on to a more sustainable path led by domestic consumption.

The problem for policymakers has been that consumers have not been able to pick up the slack fast enough to offset falling industrial demand.

"The economy is likely to slow further in 2016 as a result of persistent excessive capacity problems," wrote analysts at OCBC Bank in their outlook for the current year.

"On a positive note, the transition towards a service and consumption-driven economy is likely to provide a buffer to China's growth. Therefore, we expect China to grow around 6.7 percent in 2016."


Analysts at Nomura were more pessimistic, predicting growth to slip below 6 percent this year, but added: "We believe systemic risk remains under control and do not expect a hard landing any time soon."

Figures for 2015 are due to be released on Jan 19. Growth is expected to have cooled to its slowest pace in 25 years of 6.9 percent in 2015 from 7.3 percent in 2014, a central bank work paper said recently.



CONSUMERS TAKE THE STRAIN?

China's services sector has been one of the few bright spots of the economy over the last year, and an official measure of the sector showed activity at a 16-month high in December, although a private-sector survey was more subdued.

Vehicle sales rose in November, and are forecast to grow 5-7 percent in 2016, faster than the 3 percent expected for 2015, while January-November property sales numbers showed a modest improvement.

There is also some anecdotal evidence that Chinese consumers are not expecting the economy to go over a cliff.

The Beijing Morning Post reported that many restaurants in the capital are fully booked for Chinese New Year's Eve early next month - suggesting more people are planning to go out and spend rather than following the tradition of preparing their "reunion dinner" at home - while the latest "Star Wars" movie just enjoyed a record-breaking opening weekend in China.

"We think China's economy is stabilising in the fourth quarter," said Zhou Jingtong, an analyst at Bank of China in Beijing.

"There are no signs that the economy is getting worse, as official PMI improved in December. The consumer prices remained high while the factory-gate prices did not drop further."

London-based Capital Economics said in a note last week that recent data had been better than was expected a few months ago, suggesting the economy was at least stabilising, but that the improvements had so far been "too small to shift market sentiment".

That sentiment is notoriously fickle in China's volatile stock markets, which began 2015 on a record-breaking tear before swooning around 40 percent in a mid-year crash.

Such volatility is partly due to the peculiar make-up of a market where 80 percent of transactions are made by retail investors - a sharp contrast to Western markets where institutional and professional investors dominate.

Analysts point out that China's stock markets also have less impact on the real economy than those elsewhere.

Chinese companies rely more on bank loans and less on capital markets for their funding than Western peers and investors make up only a small fraction of China's huge population - there were just under 100 million retail investors at the end of 2015, data from China Securities Depository and Clearing Corporation showed, in a country of 1.3 billion.

"China's equity markets move independently of its economy," said the note from Capital Economics.

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[Blitzo]

Let's try not to deviate from the subject of transparency sufficient to assess as opposed to comparative transparency. If we cannot determine how the numbers are derived, the only option left is to assess how the numbers are trending and what does it mean overall.

I don't see how that part of my post was deviating from what you were saying.
You had said we do not know how China derives its numbers, and suggesting thus that may be a cause for concern and a reason why there is discrepancy.
I am saying that knowing how other nations derive their numbers (i.e. the relative degree of transparency) would also be useful in judging just how much actual concern should be warranted to China based on its degree of relative transparency or lack thereof.

You would have to purchase their economic reports because that is the nature of their business i.e. to provide economic analysis.

Yes, I suppose so.

Don't agree. As is, whether the GDP is 6% or 7 % is meaningless unless placed against a number of economic scenarios and what their implications are.

I think we are kind of talking past each other here, because I'm not entirely sure what you mean and I don't think you entirely understand what I mean.

 

[B.I.B.]

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HELP Can someone dumb down this economic theory stufff so I can understand it.......thanks.


This talk about changing from an investment led economy to a consumer lead economy has me confused.
Hazard a guess I would say the bulk of China's population had little choice other than purchasing domestically produced goods be it low end or high tech.

 

[Blitzo]

HELP Can someone dumb down this economic theory stufff so I can understand it.......thanks.


This talk about changing from an investment led economy to a consumer lead economy has me confused.
Hazard a guess I would say the bulk of China's population had little choice other than purchasing domestically produced goods be it low end or high tech.

Basically a nation's GDP is the sum of a nation's consumption, private investment, government spending, and net export/import balance, generally given by the equation: Y= C + I + G + (X-M)
Y = GDP
C = consumption
I = investment
G = govt spending
X = export
M = import

So when we say China is transitioning from an investment led economy to a consumer led economy, it means that consumption will make up a greater proportion of gross domestic product compared to previous years when investment and govt spending may have made up a greater proportion of gross domestic product.