You can’t trust the official numbers produced by the Chinese state on economics. We know that.
We know it, because the numbers we get given never quite match reality – the sales figures from the big retailers are markedly different to those of official estimates of retail activity, for example, (the latter, says the FT, are flat, and the former up nearly 12%).
But we also know it, because China’s politicians tell us so. Back in 2007, Li Keqiang – then a Communist Party secretary described his own country’s figures as “man-made” and “for reference only.”
Instead of bothering with these, he said (in private, but since published by Wikileaks), he preferred to look at real numbers such as electricity consumption, the volume of loans disbursed and the volume of rail cargo.
Right now, China’s official figures tell us that the nation is still growing its GDP at 7.6%. Li’s preferred figures tell us something different.
Electricity consumption was up slightly in September (2.7% on the same year the month before). Railway freight was down (6.2%), but new loan growth was 13.3%. That’s a slightly lower growth rate than last year, but it still represents a significant rise.
So, how fast is China really growing? For that we turn to Fathom Research, which has produced a new China Momentum Indicator using these three variables.
Their data is obviously part opinion and part analysis given that they have estimated the “appropriate weightings and seasonal factors”, but nonetheless, it “suggests that growth may be heading towards 5%” and “may already be there.”
This tallies nicely with a note just out from a China analyst we respect – Diana Choyleva at Lombard Street Research. She puts real GDP growth in China at not 7.6%, but 5.1% and expects it to “slow further in the coming quarters”.
The good news – such as it is – is that economies don’t drive markets, money flows and valuations do. Old hands will remember the charts I have used here a few times showing that the Japanese stockmarket did absolutely nothing during the country’s very high growth stage.
It was only when GDP growth fell to around 5%, companies began to focus (a little) on profits as well as market share, and middle-class money headed for the markets that the Nikkei really started to fly.
It ended badly. But not for 15 years. I’ll come back to the parallels with China in a blog post next week.