Doubts on China's Official GDP Numbers and Interest in Alternative Calculations

Concerns Over China's GDP Accuracy Spark Interest in Alternative Calculations

Doubts surrounding the reliability of China's official GDP growth data have given rise to a market for alternative calculations. This interest intensified after Beijing announced that its economic expansion for 2023 aligned with the annual target of approximately 5 per cent. While there is a consensus that the economy grew last year, discrepancies emerge in official and independent estimates, particularly regarding investment data.

The common understanding is that a rebound in consumption, following the lifting of pandemic restrictions, fueled last year's economic growth. This is evident in data outside China's National Bureau of Statistics, such as domestic flight numbers and revenue growth in consumer-focused companies. However, challenges such as a sharp decline in real estate construction, strained local government finances, and falling exports exerted downward pressure on the world's second-largest economy.

A key divergence arises in Beijing's investment data, indicating a surge in manufacturing and infrastructure spending that supposedly offset the drag from property. Contrarily, some, like Logan Wright from Rhodium Group, argue that overall investment remained flat, suggesting that GDP data significantly overstated China's growth in 2023.

Doubts about China's official investment statistics have been fueled by frequent revisions in recent years. The latest data implies a substantial adjustment, with fixed asset investment (FAI) growing 3 per cent in nominal terms in 2023. However, a "staggering" adjustment is noted, with economists suggesting a downward revision of 17 per cent in total investment, calling attention to the problematic nature of the data.

The lack of consensus among independent estimates adds complexity to understanding China's economic reality. While Rhodium Group takes a "bottom-up" approach, considering contributions from consumption, investment, and net exports based on lower-level data, others, like QuantCube Technology, rely on a range of non-official data for a closer match with official releases.

Economists also explore alternative approaches, such as applying independent price deflators to China's nominal GDP numbers. However, consensus on the best deflator is lacking. Goldman Sachs, for instance, experimented with a growth measure based on non-Chinese data, finding it fairly consistent with official GDP growth. Overall, the quest for accurate insights into China's economic performance remains challenging amid scepticism and varying methodologies.

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