It is China’s disconcerting secret: Its economic slump is much deeper than official data show.
The government says the economy grew by 6.8 percent in the final quarter of last year, but that is based on an outdated system that measures growth against the same period a year earlier.
Compared with the previous quarter, the method used by most major economies, growth was as low as 1 percent and possibly zero, economists say.
“We sharply decelerated in November and December,” Standard Chartered economist Stephen Green said. “There are no clear signals we have accelerated.”
If China’s economy is indeed barely growing, that would dash hopes China, the world’s third-largest economy, might drive the world out of recession. It also means communist leaders face a tougher challenge than outsiders might think as they scramble to stem a flood of job losses and ignite a recovery.
Other Asian economies such as Japan and South Korea are already contracting. Beijing says there are signs its 4 trillion yuan (US$586 billion) stimulus launched in November is taking effect. But its data might be giving companies and investors an overly positive picture of its current health.
Other countries such as the US and Japan report GDP growth by comparing each quarter with the previous quarter. That requires more number crunching to adjust for seasonal differences but quickly reveals changes in performance.
The gap is well-known to private sector economists, who try to estimate China’s quarter-on-quarter growth based on skimpy government data.
Fourth-quarter expansion from the previous three months was “close to zero,” said Ting Lu (陸挺), a Merrill Lynch economist.
Green said his early estimate showed it was “basically zero,” though he raised that to 1 percent after more calculation.
Still, he said, growth was unlikely to revive in the current quarter.
That would be more in line with indicators that show China’s exports and manufacturing shrinking and weakness in investment and consumer spending. The government says at least 20 million migrant workers have lost their jobs.
JP Morgan gave a more robust estimate of 1.5 percent quarter-on-quarter growth. But its figures also highlight a sharp decline: That rate is just one-tenth of the 15 percent quarter-on-quarter growth the bank says China achieved in early 2007.
Recent numbers suggest that China’s economy may be regaining some momentum. A key indicator of manufacturing improved last month, suggesting the slump may be bottoming out.
For decades Chinese economic data was thought to be heavily massaged.
Local leaders were accused of sending Beijing phony growth figures to make themselves look better. The government was accused of manipulating the final numbers to show it was achieving its goals.
Today, the Cabinet’s National Statistics Bureau is regarded as professional and honest but is struggling to keep up with China’s rapid economic evolution. Its small staff repeatedly revises past growth estimates as new data come in.
It was only in 2005 that booming service industries such as restaurants were counted in economic output. That forced the bureau to revise a decade’s worth of growth figures. But only annual numbers were revised, not those for each quarter, making it harder for analysts to make historical comparisons.
“China’s statistics system is really in a mess,” Lu said.