Not So Fast

For years the Chinese economy has been a thing of wonder.  It is now the second largest economy in the world and has a recent growth rate that leaves the rest of the world envious.  A few days ago, a research team comprised of an economist from the University of Chicago and three from the Chinese University of Hong Kong released a study (click here to read the full piece) suggesting less wonder is necessary.  It seems they have discovered what many have suspected for a long time: lots of the data were made up.

As the economists tested various methods of quantifying the nation’s output, they were unable to recreate the official tallies reached by the National Bureau of Statistics of the Chinese central government.  Discrepancies were greatest in data pertaining to business investment and exports as well as in the industrial sector; the differences in official statistics and the researchers’ estimates were smaller in the non-industrial sector.

The academics’ models started skewing away from official releases sometime around 2007-2008.  They used tax data to estimate the actual output, and it lined up until around the time of the global financial crisis.  Since then, the official tallies are out of line with the researchers’ estimates. 

According to their evaluations, economic growth in China may have been 1.7 percentage points less than the country disclosed for each year from 2008 to 2016.  In part, they believe business investment was roughly seven percentage points lower than official numbers.  If these estimates are accurate, Chinese output may have been roughly $1.5 trillion less than reported in 2016.

Worried that their findings would be questioned, these researchers attempted to validate their findings using a second set of data that they believed could not be easily manipulated.  They observed night lights via satellite, electricity consumption, railway cargo flow, and exports and imports.  A data mismatch in this model started developing around 2008 as well.

China is the second biggest economy in the world, so it’s growth rate matters.  More importantly to America, they are the largest trading partner we have in total trade and represent the third largest export destination behind Canada and Mexico respectively.  Global growth may not be as robust as earlier estimates suggest. 

It appears America is likely to remain the premier economy for a while. China is growing slower than thought, and another significant player, the European Union, cannot come to terms with the U.K. over Brexit.  Atlas believes the odds that America will remain the nicest house in the global neighborhood for a while longer are improving.