China’s data “black box” confounds economists

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For investors and policymakers around the world, China̵[ads1]7;s quarterly economic data is a starting point for decoding the state of the world’s second-largest economy, but the latest numbers contained a puzzle of their own.

The country’s gross domestic product had grown 0.8 per cent quarterly and 6.3 per cent on an annual basis in the second quarter. However, the overall growth from quarter to quarter in the four previous quarters indicated a growth of 6.8 per cent.

The mismatch arose because of official “seasonal adjustment” revisions by the country’s national statistics agency to the quarterly growth data in 2022. While such revisions are routinely made, economists say the effect has been larger in recent years.

The lack of a detailed explanation of the process illustrates the difficulty of analyzing China’s statistics at a time when the trajectory of the economy is seen as crucial to global growth.

“That’s where we are at the moment. How much has the economy grown in the second quarter, or [has it] not? It’s a very important question for both markets and policymakers,” said Louis Kuijs, chief Asia economist at S&P Global. “Everyone is asking, ‘Is the Chinese economy stalling?’ It is not easy to give a watertight answer to that.”

China has “definitely become more of a black box, and it’s just continually moving in that direction,” said Shehzad Qazi, chief executive of the China Beige Book, which publishes alternative economic indicators based on surveys of private companies in the country. The surveys have consistently indicated weaker consumption than official figures show.

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Long-standing questions about how to interpret China’s economic indicators have a new sense of urgency in 2023, when official data has pointed to a loss of momentum following the lifting of Covid-19 restrictions. Politicians are struggling with headwinds, weak consumption and a crisis in property that has lasted almost two years.

As in many other countries, China’s official data is typically seen as a “reference” that can be supplemented with other indicators, ranging from steel production to energy consumption. But while some new data series have been added, a large number of other sources have been discontinued, often for no apparent reason. It has also become more difficult to access complementary and detailed information.

“Disappearing series have been part of the challenge of analyzing China in general, but access to reliable data has definitely become more difficult in recent years,” said Diana Choyleva, chief economist at forecasting firm Enodo Economics in London.

Questions surrounding the reliability of domestic data flared up under the country’s zero-Covid policy. In the absence of clear information from local authorities, traffic data was used as an indicator of the severity of city-wide blockages. The government stopped publishing death data after a nationwide outbreak began. This month Zhejiang province released and deleted figures showing a sharp increase in cremations.

Carlos Casanova, senior economist for Asia at UBP, said he had not had access to detailed data on local government land sales on Wind, a data platform, since its use outside the country was restricted this year. “If I had to guess, I’d say the reason for that is because pockets of stress have appeared . . . and they don’t want the market to get too carried away,” he said.

With the authorities tightening the control of information, including a new data law that in many cases requires multinational companies to split their domestic and external data, fewer are providing data of any kind.

“When the China Beige Book first started, we had a plethora of competitors,” said Qazi, who testified before a US congressional committee on China this month regarding the country’s economic data. – Much of it has disappeared now.

Another economist working for an international investor, who asked not to be named, said there is currently “less honest dialogue” in China and there are “some data restrictions that are tightening”. That said, he doubted the government would hide a growth shock. “They are sensitive to accusations that the data is not completely reliable,” he said. “[The government] would just have to print the numbers.”

A sense of slowing economic momentum in China has largely been based on official data itself. The government has set a cautious growth target of 5 percent, which Premier Li Qiang said in a speech last month the country was on track to achieve.

Yet, as China’s economy has continued to assume a more significant position in a global context, there has been little corresponding development in communications, analysts said.

In its data release this week, the NBS said in a footnote that the revisions from its “seasonal adjustment model” were related to monthly revisions for industrial enterprises, fixed assets and retail sales. It declined to comment further in response to a question about how the seasonal model works, pointing instead to its release.

“The national accounts data in China is still not produced in a way that we are familiar with in advanced economies,” Kuijs said. “When it comes to standards of accountability and transparency, you can go to [other countries] and ask them questions and they will explain why we changed this.”

Additional reporting by Andy Lin in Hong Kong