The “black box” of Chinese data baffles economists

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For investors and policymakers around the world, China’s quarterly economic data is a stepping stone in deciphering the state of the world’s second-largest economy, but the latest numbers hold a puzzle of their own.

The country’s gross domestic product grew by 0.8 percent on a quarterly basis and 6.3 percent on an annual basis in the second quarter. However, the compounded quarter-on-quarter growth over the previous four quarters means growth of 6.8%.

The mismatch arose because of official “seasonal adjustment” revisions by the country’s National Bureau of Statistics to quarterly growth data in 2022. While such revisions are done routinely, economists say their impact has become greater in recent years.

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

“This is where we are now. How much did the economy grow in the second quarter, or [has it] no? “This is a very important question for markets and policymakers alike,” said Louis Kuijs, chief Asia economist at S&P Global. “Everyone is asking, is the Chinese economy stalling?” It’s not easy to give a waterproof answer to that.”

China has “definitely become more than a black box, and it is constantly moving down this path,” said Shehzad Qazi, COO of China Beige Book, which publishes alternative economic indicators based on surveys of private companies in the country. Surveys consistently report weaker consumption than official figures show.

Long-simmering questions about how to interpret China’s economic indicators have a new sense of urgency in 2023, when official data indicated a loss of momentum after the lifting of Covid-19 restrictions. Policymakers are grappling with trade headwinds, weak consumption and a home cash crunch that has dragged on for nearly two years.

As in many other countries, China’s official data is usually 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 wide range of other sources have been discontinued, often for no apparent reason. Supplementary and detailed information is also more difficult to access.

“The disappearance chain has been part of the challenge of analyzing China in general, but access to reliable data has certainly become more difficult in the past few years,” said Diana Chuileva, chief economist at forecasting firm Enodo Economics in London.

Questions surrounding the reliability of domestic data have arisen under the country’s coronavirus policy. In the absence of clear information from local authorities, traffic data has been used as an indicator of the severity of citywide lockdowns. The government stopped publishing death data after the nationwide outbreak began. This month, Zhejiang Province released figures showing a sharp rise in cremations, then deleted them.

Carlos Casanova, chief Asia economist at UBP, said he has not been able to access detailed data on local government land sales on Wind, a data platform, since its use outside the country was restricted this year. “If I were to guess, I would say it’s because pockets of tension are emerging . . . and they don’t want the market to go too far.”

With the government tightening controls on information, including a new data law that in many cases requires multinational companies to separate their domestic and overseas data, fewer people are giving away data of any kind.

“When the Beijing China Book first started, we had a large number of competitors,” said Qazi, who testified before a US congressional committee on China this month regarding the country’s economic data. “A lot of that is gone now.”

Another economist working for an international investor, who asked not to be identified, said there is currently a “less candid dialogue” within China, and there are “some data constraints that are being tightened”. However, he doubted that the government would hide the growth shock. “They are sensitive to accusations that the data is not entirely reliable,” he said. “[The government] You’ll just have to print the numbers.”

The sentiment of slowing economic momentum in China was based largely on the 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 is on track to achieve.

However, as the Chinese economy progressed to occupy a more important position in the global context, there has been no corresponding development in its communications, analysts said.

In its statement this week, the NSO said in a footnote that the revisions from the “seasonal adjustment model” pertain to monthly revisions to industrial establishments, fixed asset investment and retail sales. He declined to comment further in response to a question about how the seasonal model would work, instead referring to the release.

“National accounts data in China is still not produced in the way we are known in advanced economies,” Kuijs said. In terms of accountability and transparency standards, you can go to [other countries] And ask them questions, and they’re supposed to explain why we’re changing this.”

Additional reporting by Andy Lin in Hong Kong