May 3 – Patrick Chovanec, an economist and associate professor at the Tsinghua University School of Economics and Management expressed skepticism about China’s key economic figures in a recent article in the South China Morning Post.
“If investment merely remains stable compared to last year, you could lose 5 percentage points off GDP growth, bringing it to 4.5 percent,” Chovanec says.
Chovanec also cites examples of inflation, which he says is far higher than the Chinese government admits. Fresh milk he has delivered in China has increased in price by 33 percent over the past 12 months while over the last three years a KFC meal has increased by 53 percent and petrol by 50 percent.
How China evaluates its consumer price index is a state secret, although it is known that it is made up of a basket of commodities. Taxi fares are believed to be in the basket, as is pork. However Chovanec believes these basket commodity prices are fixed – taxi fares in Beijing have not been authorized for any increase in the past three years and Beijing placed a large amount of its pork reserves on the market in 2011 to bring market prices down.
Chovanec’s comments have been echoed by other experienced China-based economists including Michael Pettis and Marc Faber, both of whom are equally pessimistic concerning the true state of the Chinese economy.
“The Chinese government figures are meaningless because they are manipulating most of the data, which confirms there is no economic growth this year,” Faber told Al Arabiya last month. “In fact, China’s production of steel, cement and electricity, as well as the volume of its exports and car sales are stable or declining compared to last year.”
“China’s statistics and government figures have long been manipulated,” notes Chris Devonshire-Ellis, founding partner of Dezan Shira & Associates. “Years ago no one would take them at face value, but that began to change when China became mainstream international news. Journalists and editors with little or no China experience began to publish official Chinese stats as given facts, and this trend has now become the widely held view. I believe it to be a mistaken policy.”
Chovanec’s views, however, are out of sync with those expressed by the World Bank, which states that China is set for 8.2 percent growth this year and 8.6 percent next year while HSBC expects a rise to 8.3 percent in the second quarter of 2012. The IMF also believes that China’s GDP growth will be back on track at 8.8 percent next year. China’s Premier Wen Jiabao has suggested a 7.5 percent target would be met.
“Our view is that China is slowing, and I suspect that Patrick’s views are more right than wrong,” says Devonshire-Ellis. “Now is a good time to look at other markets in Asia for growth as a hard landing for China could come as a nasty shock for many if they are not prepared.”
*Correction (5/7/12) – An earlier version of this article attributed the quote in paragraph 6 describing China’s economic figures as “meaningless” to Patrick Chovanec. This statement was made by Marc Faber.