FT: Doubts rise over official GDP growth rate

A Chinese national flag flies in front of buildings in the Lujiazui district of Shanghai

The view that China is growing far slower than official figures show is increasingly going mainstream, with big global investors among those now basing decisions on a rate of about 5 per cent, the Financial Times reported yesterday.
According to an article by Josh Noble in Hong Kong, government statistics show China’s economy grew at an annual pace of 7 per cent in the second quarter of this year, in line with Beijing’s target for the year and the World Bank estimate of 7.1 per cent.
However, according to the paper, doubts have long lingered about the veracity of Chinese economic data, with many analysts believing them to be understated during times of rapid growth and overstated during the current slowdown. A strategist at one European asset manager described the official growth figure as “a very crude propaganda tool”.
The recent decision by the People’s Bank of China to devalue the renminbi, a move that rattled markets across the world, has been seen as further evidence that China’s economy is in far worse health than official data show.
The FT adds that some have instead turned to alternative estimates, such as the “Li Keqiang index” — a composite of various indicators favored by the Chinese prime minister, such as electricity production and railway freight volumes. Many of those gauges fell into outright contraction late last year.
Bob Browne, chief investment officer at Northern Trust, told the London-based paper that the fund manager recently lowered its growth forecast for China for the next five years to “5 per cent and change”, which he said was a recognition that using official statistics was “really no longer appropriate”.
“We just can’t reconcile it with the private sector surveys or more valid government bottom-up numbers,” he told the FT.
The true nature and rate of Chinese growth is a key ingredient for investors and economists as they seek to measure demand for global commodities and forecast growth rates for the countries that produce them.
Sharp falls in the price of many raw materials, including oil, copper and iron ore, over the past year have been seen as added proof that China, the biggest consumer of many commodities, is actually growing well below the stated rate.
“If you look at the kind of hard data that are entering into the composition of the so-called Li Keqiang index, the growth is today probably closer to 5 per cent than to 7 per cent,” said Jean-Louis Nakamura, chief Asia investment officer at Lombard Odier, as quoted by the newspaper.
According to the FT, some are even more bearish. Lombard Research reckons China grew at an average rate of 4.7 per cent in the first half of the year, while Citi’s chief economist Willem Buiter believes growth could already be as low as 4 per cent.
Those views chime with a recent confidential survey conducted by Consensus Economics, a researcher, which asked economic forecasters what they believed the true rate of Chinese growth has been this year. Those polled gave an average growth figure for the second quarter of just 4.3 per cent, and a forecast for the current quarter of 5.1 per cent, the paper added.
A separate Bank of America Merrill Lynch survey of fund managers released on Tuesday showed that the majority of investors now expect China to be growing at 4.1–5 per cent in three years’ time. Most gave an answer of 5.1–6 per cent just a month ago.
Figures around 5 per cent contrast with the consensus estimate from investment bank economists, which is currently 6.9 per cent for 2015.
David Meier, economist at Julius Baer, has an official forecast for this year of 6.7 per cent, but notes “suspicion that the figures could be 1-2 per cent overdone”.
“At the end of the day, we have to comment, analyze and publish forecasts based on the official [gross domestic product] data series,” he told the FT.