Skeptical of the China data skeptics
The problem with answering comments is that one has to swat down one conspiracy theory after. One recurring theme is that the China GDP data is fake. People breathlessly report obscure data on electricity production or rail shipments. I don’t doubt that the Chinese data is flawed, but there’s no reason to assume it’s not broadly correct. You need to look at the big picture, and with China I mean really big.
1. The quarter-to-quarter data is strangely smooth (although that’s partly an artifact of their use of year over year, rather than quarterly data.) But over the business cycle RGDP growth varies as much as in the US, indeed even more.
2. People forget that until recently China had 10% trend growth, so when it goes from 14% to 7%, that’s a big slowdown. People also forget that some sectors of the Chinese economy are probably growing smoothly. Health care, college education, subways rides (which are constrained by capacity), etc. So if the overall RGDP growth rate slows from 14% to 7%, and some sectors are growing smoothly at 10%, then the cyclical sectors are slowing extremely rapidly. And the cyclical sectors are also the commodity intensive sectors. You could easily see lots of industry data that seems inconsistent with a 7% RGDP growth rate, during a cyclical slowdown.
3. People sometimes argue that the trend rate has not been 10% in recent decades, but more like 7% or 8%. The problem with these conspiracy theories is that China’s just too big and open to world trade to cook the books in that way. That’s because over the period since 1980, that kind of cheating would lead to China’s RGDP being overstated by a factor of 2 or 3. China would now be far poorer than claimed. (Having said that, trend growth is slowing, and will probably be 5% to 6% over the next decade.)
4. The World Bank has China’s RGDP/person in PPP terms at 72.7% of Mexico, which seems about right to me (I’ve visited many areas of both countries.) By comparison, India’s at 33% of Mexico. Does anyone think China’s even close to India? Yes, China has poor rural areas, probably more than Mexico. But some rural areas (like the highly populated Yangtze delta) are much richer than you’d think.
5. These theories would also require cheating on all the sectoral data. But trade data is two sided, and other countries also report soaring Chinese exports since 1980. Chinese consumers buy 20 million cars per year, vs. 1 million in Mexico. And yet the poorer China has only 11 or 12 times Mexico’s population. India, with almost as many people as China, has a market of less than 3 million cars/year. That’s just cars, but take any appliance you wish and China looks at least as rich as the data shows, at least in terms of purchasing power.
6. Maybe the auto figures are also faked. Maybe VW and GM and all the other western car companies making cars in China are in on the conspiracy. Maybe the Australian mining firms that claim to sell a God-awful amount of iron ore to China are also faking the data, as are the auto parts suppliers. Maybe China’s not the world’s biggest exporter, not the world’s biggest carbon emitter.
7. Or maybe China really is 72.7% as rich as Mexico. Look at Chinese wages. They only passed the Philippines in 2000, and are now more than 4 times higher. They passed Indonesia in 2003, and are now twice as high. And those two countries have been growing at about 5%/year. Indeed I find that graph hard to believe, given how much richer Malaysia is than China:
(OK, the previous picture is Beijing, so here’s a pic from Guangxi, one of China’s poorest regions):
And the next picture is from China’s absolutely poorest province, Guizhou.
(The article I found this picture in says this province is becoming a center of “big data.” Would that happen in Chiapas?):
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31. August 2015 at 06:50
Steve Keen has been blasting China for its giant debt growth.
http://www.debtdeflation.com/blogs/2015/07/09/will-we-crash-again-ftalphaville-presentation/
http://www.debtdeflation.com/blogs/wp-content/uploads/2015/07/Keen2015WillWeCrashAgain.pptx
China is the biggest credit bubble EVER.
Bubble, bubble, bubble. Remember ?
31. August 2015 at 06:51
This is great Scott. Smoke out the conspiracy theorists!
31. August 2015 at 06:53
Chinese car production is falling:
http://wolfstreet.com/2015/08/05/unnerving-thing-global-automakers-said-about-chinas-economy/
31. August 2015 at 07:00
Thanks Brian.
Willy2, Any comments on my post?
31. August 2015 at 07:17
I always figured the Chinese Gov would publish data as they were measured, when it suited them, and fudge the numbers when it didn’t. Maybe they just don’t care enough to organize a big lie like that though.
In any case, I’d worry more about measurement error than lying. China is so ‘hot and loud’, it just seems unrealistic that the government is measuring everything. I guess missing the output of the lady who sells eggs at the market is meager next to a GM factory’s output.
31. August 2015 at 07:19
One of the stupidest Sumner posts in months–and that’s saying a lot since so many to pick from.
What Sumner misses is that the GDP figures are for the “coastal cities” of Beijing province, Shanghai province and Canton province, along with Chengdu and Chungking thrown in. The rest of the country is dirt poor, not much different from Mao’s time.
That’s the “conspiracy”, not that Beijing etc does not have shiny new cars. In fact, regarding cars, if you figure the “coastal areas” above are roughly 200 M people, and that most of them have never owned a car, then it makes sense that China buys 20 M cars a year, since the USA, with 330M people, buys about 16M but everybody has a car from previous years. Plus the cars in China are made for ‘local consumption’ meaning they don’t have fancy features, are more defect prone, fewer safety features and the like, thus more affordable.
In short, Sumner ignores (except in a passing reference) that China has lots of poor people in the countryside not counted in official statistics.
Finally, China fakes their GDP data. About over 10 years ago I concluded, from an energy analysis, that China had 33% less GDP than they claim, and a U of Penn / Pittsburgh professor confirmed this years later. Further, though it’s getting a bit off-topic, I also estimate China is over-estimating their population (it’s smaller than they claim).
Sumner reminds me of Beatrice and Sydney Webb, Fabian socialists (the secret kind, professing like professor Sumner that they love democracy and/or free markets), who visited the USSR on a chaperoned tour in the 1930s and wrote a two volume book (which I have an original copy of): Soviet Communism: A New Civilization? (1935) (the 2nd and 3rd editions of 1941 and 1944 did not have “?” in the title). They swallowed, hook, line and sinker, like suckers, Stalinist propaganda.
31. August 2015 at 07:20
But why do you remain a Mexico data skeptic?
https://againstjebelallawz.wordpress.com/2015/08/22/the-great-axis-stagnation/
31. August 2015 at 07:24
Ray,
If an unnamed Pittsburgh professor confirmed it then it must be true.
31. August 2015 at 07:27
Yikes. I’d been under the impression the Philippines was doing pretty well economically. What’s going on there?
31. August 2015 at 07:32
Chinese debt is the fascinating thing … well, debt in general is the modern world is a fascinating subject.
Debt is growing faster than growth and accelerating every year. Rising debt can create deflation, but rising money supplies can create inflation.
At the same time, easy access to capital has fueled the greatest prosperity boom in human history.
Our debt-based, fiat money system is relatively new, and I’m not sure anybody really knows what will happen next.
The best example we have is Japan, and its story can be interpreted any number of ways.
31. August 2015 at 08:51
Scott,
Is this post a rebuttal to Tyler Cowen’s posts on China? From today he opines:
“While the final outcome remains uncertain, Austrian-like perspectives on China are looking pretty good these days.”
http://marginalrevolution.com/marginalrevolution/2015/08/the-chinese-fiscal-stimulus-memory-hole.html
31. August 2015 at 08:51
I think a lot of China watchers suffer from what Tyler Cowen calls mood affiliation. Ironically, Cowen himself may suffer from this when it comes to China.
Some take what is good about China (economic growth) and use it to advocate what is bad (state intervention). So we have Thomas Friedman saying we need more state intervention like China to grow.
Others take what is bad (authoritarian government) and use it criticize what is good (savings and investment). Media commentators cite China’s overinvestment such as empty cities.
There is plenty of good and bad. There is still too much state intervention, but much less than before. There is lots of productive investment and also lots of unproductive investment. There has been tremendous improvement in living standards and the pollution that comes with it.
Sumner focuses on what is good, but does not advocate what is bad. Which is good.
31. August 2015 at 08:57
Scott is so pussy-whipped by his Chinese wife that he’s evidently gone native.
31. August 2015 at 10:26
Scott:
Kudos for sticking your neck out for your positions on this post and previous post on Pop Monetarism.
Like Krugman, I was pretty depressed this morning when I read Rithholtz ‘s column on Bloomberg and heard all the “easy” money talk on Bloomberg. Keep up the good fight.
Your latest post on China also brought out some of the nasty comments I typically see whenever China is mentioned. (See some of the comments on Yahoo or Business Insider or even NYT.) I can’t tell whether there is so much racism that’s simmering or it’s just the ignorant/insular part of population that spout off.
Finally, having been to China, India and Mexico (only briefly for about a week), my observation on development corresponds to your overall observations. I would caution about these pretty pictures on Chinese cities though. Once one gets closer to the ground, there is still a lot of dirt and (relative) poverty compared to first world existence. The Chinese have stated their goal to be first world and they know they will have to work hard to get there.
31. August 2015 at 10:39
@Ray, just the fact it was Stalinist propaganda, doesn’t mean it wasn’t true. And Chinese farmers are becoming fewer and getting richer as well (especially around the cities). Haven’t you looked at the picture of the poorest province in the country in this post? Remember, North Korea has the same percentage of the workforce in agriculture as China, and Chinese farmers were poorer than North Korean ones back in the day. China is the largest food producer in the world and agricultural productivity has skyrocketed since 1980.
http://www2.warwick.ac.uk/fac/soc/economics/staff/academic/harrison/archive/noticeboard/bergson/allen.pdf
31. August 2015 at 10:40
O/T: From Cochrane’s latest:
“So, face it, the outcomes we desire from monetary policy are just about perfect. We don’t really know how this happened, but we should savor it while it lasts.”
31. August 2015 at 11:01
Ray, You said:
“What Sumner misses is that the GDP figures are for the “coastal cities” of Beijing province, Shanghai province and Canton province, along with Chengdu and Chungking thrown in. The rest of the country is dirt poor, not much different from Mao’s time.”
Still using the spellings from the 1960s, which is how out of date your analysis is. A large share of the world’s laptops are made in “Chungking” which I’m sure is no different from Maoist times. You do realize that Westerners can actually travel all over China, don’t you? Or that obesity is an increasing problem whereas starvation was the problem in Maoist times. Or that Chengdu and “Chungking” also have lots of traffic jams.
Perhaps your silliest post ever.
E. Harding, Who said I was?
Charlie, I find debt talk to be boring.
Dan, Not directed at Tyler, directed at many commenters over the years. I don’t think the Austrian perspective tells us anything useful about macroeconomics.
Chuck, Very good comments. You said:
“Some take what is good about China (economic growth) and use it to advocate what is bad (state intervention). So we have Thomas Friedman saying we need more state intervention like China to grow.”
I agree that people do this but it makes no sense. China only began catching up when they moved toward a market economy—and the lesson is you need more state intervention?!?! What am I missing? Does Friedman think they are doing better than Hong Kong or Taiwan or Singapore?
Beefcake, She probably agrees with Tyler.
LC, I find that anti-Chinese racism is still acceptable in America in a way that anti-black racism no longer is. People don’t just trash the Chinese government, they think nothing of trashing the Chinese people, all 1.4 billion (whom they’ve never even met.) Agree about the dirt when seen close up–I’ve been there. As recently as 2012 I walked through pretty bad slums on the edge of Beijing, one of China’s richest cities.
31. August 2015 at 11:03
E. Harding, You really should ignore Ray.
31. August 2015 at 11:07
My guess is Sumner is roughly right on this one.
Tyler Cowen has been criticizing China for malinvestment. On the other hand, the United States will spend $10 trillion the next 10 years on “national security.” As a classical economist would say, that is $10 trillion of pure malinvestment.
Ergo, if the United States sinks into a recession in the next 10 years, should we blame federal malinvestment?
31. August 2015 at 11:12
The ‘problem’ with the U.S. spending $10 trillion on national security is that it largely benefits the rest of the world.
For example, the Japanese and Chinese are able to pull oil out of the Middle East without any of the costs of keeping the supply lines open. And the Europeans are able to fund their welfare states because the U.S. military has cowed the Germans and broken the Russians.
31. August 2015 at 11:16
Add on: from what the Hong Kong Monetary Authority says, the People’s Bank of China reports to be Chinese Communist Party, or CCP.
Westerners have only an oblique view of the PBOC. However they strike me as completely willing to print a lot of money to keep the Chinese economy growing. As they are still below inflation targets, I suspect they will be able to keep China growing. This picture may be much more simple than we think.
Perhaps it is time for the United States to consider a central bank that is growth-oriented, as opposed to inflation-oriented.
31. August 2015 at 11:23
Charlie J–maybe so. Then you might say that federal malinvestment in the military sector will cause a recession in the next 10 years, but that level of spending is absolutely the minimum required.
And that the Chinese are malinvesting in infrastructure and housing, while we malinvest in military hardware and personnel.
Gee, how will this one end up?
31. August 2015 at 11:26
“E. Harding, Who said I was?”
-You did!
http://econlog.econlib.org/archives/2015/08/policy_affects.html#346284
I’m only not ignoring Ray because you still aren’t. Also, you half-rebutted Ray’s point, half-supported it. Part of Ray’s point was that Chengdu and Chungking are some of the richest parts of China.
@Charlie
“broken the Russians”
-Where? Korea? Vietnam? Nicaragua? Cuba? Afghanistan? Certainly not Europe.
“I don’t think the Austrian perspective tells us anything useful about macroeconomics.”
-I think its take on business cycle theory does.
31. August 2015 at 11:30
U.S. military spending could cause a recession in the U.S.; however, if it benefits Japan, China and Europe, then global growth rises.
To a certain extent, there is bitterness about China because of a feeling that the Chinese have gotten more out of the U.S.-Chinese economic deal than we have.
We’ve had debt-fueled booms before, but still had railroads and technological advances when it was over. This debt-fueled boom seems to be going into financial assets. So when this bubble pops, we won’t have as much real assets to show for it.
31. August 2015 at 11:40
EJ Harding: The Russians are certainly broken insofar as Europe goes. Sure, they cause some mischief at the margins.
As they say, the U.S. military has kept the peace in Europe by keeping the Germans down and the Russians out.
31. August 2015 at 11:45
A lot of those “growth” measures are problematic, though. Yes, subway ridership is increasing, but those subway systems are also losing more money — billions more.
http://shanghaiist.com/2012/08/15/chinas_bleeding_subway_systems.php
benjamin cole — Look around Detroit, lots of wasted investment in housing and infrastructure. Also, US defense spending was massively increased for WW II — US living standards went way down, but it wasn’t a recession.
31. August 2015 at 11:53
3. People sometimes argue that the trend rate has not been 10% in recent decades, but more like 7% or 8%. The problem with these conspiracy theories is that China’s just too big and open to world trade to cook the books in that way. That’s because over the period since 1980, that kind of cheating would lead to China’s RGDP being overstated by a factor of 2 or 3. China would now be far poorer than claimed. (Having said that, trend growth is slowing, and will probably be 5% to 6% over the next decade.)
OTOH there’s a much stronger argument that Chinese growth has been 7-8% since 2001, because the difference would only amount to a few years of growth — and in fact the non-gov’t data tends to support that outlook, such as the housing data. And the gov’t data isn’t even comparable over that short period because the methodology has changed. So the best answer is probably “we don’t know.”
31. August 2015 at 12:14
Tall Dave—
Oh, I agree with you.
But I am taking Tyler Cowen’s argument that China malinvestment in infrastructure and housing will doom them to a recession.
Perhaps China is doomed to a recession, almost every economy is. But if malinvestment is the reason for the recession, then the US will have a recession due to our malinvestment in military hardware and personnel, now running about 1 trillion dollars a year.
31. August 2015 at 12:17
Benjamin, if there is no such thing as “malinvestment” then why do not Keynesians and Monetarists unite and give us roads paved in gold, silver and solar panels? And if not that, why can’t we have at least 3 lanes on every US highway? I know my commute could use this.
The central bank has purchased $3 trillion in financial assets (who knows of what quality) and what do the American people have to show for it? If the Monetarists want to win the PR battle they might want to get their name on a bridge or tunnel. Or perhaps, like the Panama Canal, foreign banks can invest in US infrastructure and the US banks can invest in foreign projects, all made possible by quantitative easing.
31. August 2015 at 12:24
Economists think high-level thinking’s a math equation, but they can’t dot their “i’s” and cross their “t’s” when applying double-entry bookkeeping.
Targeting N-gDp is pseudo-science. The only way to close the output gap is to target R-gDp (which Scott Sumner can’t do). Targeting N-gDp is a political expedient. A capitulation and dangerous social-economic concession.
Scott Sumner is ignorant. He doesn’t know money from mud pie. How the hell did he graduate from Chicago is a mystery.
31. August 2015 at 12:25
Economists think high-level thinking’s a math equation, but they can’t dot their “i’s” and cross their “t’s” when applying double-entry bookkeeping.
Targeting N-gDp is pseudo-science. The only way to close the output gap is to target R-gDp (which Scott Sumner can’t do). Targeting N-gDp is a political expedient. A capitulation and dangerous social-economic concession.
Scott Sumner is ignorant. He doesn’t know money from mud pie. How the hell did he graduate?
31. August 2015 at 12:26
The roc in monetary flows craters in Dec. But Scott Sumner can’t see it coming. In fact Scott Sumner hasn’t got any forecasts right. He’s an idiot.
31. August 2015 at 12:27
Only a moron would target N-gDp. All the economic oscillations concern R-gDp.
31. August 2015 at 12:56
Scott, I agree Friedman doesn’t make sense. People are constantly mixing up the good with the bad when it comes to China.
Charlie, the Germans can fund their welfare state because the US cowed the Germans? 😉
31. August 2015 at 13:01
Chuck: Well, in 1945 after two failed attempts the Germans were finally convinced that a policy of militarily dominating Europe wasn’t going to work. It was agreed that the U.S. would take on the role of ensuring the European peace which gave the Germans an enormous peace dividend.
31. August 2015 at 13:05
Chinese data are probably more reliable for showing trends than for absolute numbers–unless over time they are *changing* the amount of fudging they do.
31. August 2015 at 13:31
“C, I find that anti-Chinese racism is still acceptable in America in a way that anti-black racism no longer is.”
If this truly depicts American racism, then Americans have become more sophisticated than I realized. From my perspective, many people (including “progressives”) are still at the level of characterizing asians. “I taught english in Seoul, and the thing about asians…”
31. August 2015 at 13:37
@Dan W.
“The central bank has purchased $3 trillion in financial assets (who knows of what quality) and what do the American people have to show for it?”
How about 8 million new jobs in the last three years, virtually all in the private sector, despite ‘fiscal consolidation’ in 2013 that reduced the budget deficit by $500 billion?
31. August 2015 at 14:11
E. Harding, I misunderstood you. I wasn’t questioning their GDP data in that comment, just the claim that incomes in Mexico have not grown. I also question claims that income in the US have not grown, while not questioning current GDP estimates for the US. Maybe the price index has a problem.
Someone should get data on the percentage of Mexicans that own TVs, stoves, refrigerators, cars, cell phones, computers, cable service, washing machines, etc. etc. Compare to 1980 data. I’m pretty sure I’m right in almost every single category.
Talldave, They lose money because the ticket price is held down to 50 cents for political reasons, but that doesn’t mean the service is not being provided. The service is part of real GDP.
Charlie, You said:
“To a certain extent, there is bitterness about China because of a feeling that the Chinese have gotten more out of the U.S.-Chinese economic deal than we have.”
Yes, and that’s exactly the sort of attitude I’m talking about. Americans really don’t know anything about China. They really don’t. You know those Holocaust movies you see every once and a while? That’s China in 1961. Emaciated bodies in the tens of millions. So what if they’ve gotten more out of it than we have—we should all get down on our knees and praise God if they’ve gotten 10 times more out of it than we have. Any American with the attitude you describe is either ignorant or cruel. (I assume Trump is ignorant–I can’t even imagine him reading a book.)
31. August 2015 at 14:42
Ah, but can you imagine Trump writing a book?
“That’s China in 1961”
-True- but also China at any point before the 1950s. Also, China was generally understood to be an economic success story (in comparison to most of non-Communist Asia; e.g., India) by the early 1970s.
31. August 2015 at 15:24
O/T: In addition to the gem above, I saw this in the comments from Cochrane (which also sounded very anti-MMist to me):
Commentator:
“So the Fed bought up ~3 trillion of Treasuries/MBS with no bad effects? That means congress can deficit spend with no bad effects? Or is that the seniorage for being the worlds’ reserve currency? So MV=PQ is dead? I always thought of it as almost a tautology. I guess if V is very elastic it can still be a tautology.
John:
“1) Yes. remember, the Fed simultaneously sold $3 trillion of reserves. They made change — took 20s and gave back 2 fives and a ten. 2) No. 3) No. There is no seignorage at zero rates 4) Yes, at least at the zero bound. As you point out, V = PY/M when M and B are perfect substitutes”
“M and B are perfect substitutes”… where have I heard that before? MMT? Post-Keynesians? Am I on the right track here, or does he mean something else? B = Treas. debt, no? That’s what I assume the “make change” comment is all about too. Of those four answers, which do you agree with Scott? Just 2? Or 2 and 3?
Sorry, I’ll quit w/ the OTs: I know you two disagree on some things, but I was just surprised by some of these recently.
31. August 2015 at 16:04
@E. Harding,
“Ah, but can you imagine Trump writing a book?”
Writing books is easy when you can pay to have them ghost written. And regardless, he probably authors his own tweets: and he’s proving to be a natural at that… tweeting circles around his flat footed GOP competition, whom probably commission a focus group study before approving the release of each ghost written tweet. Besides, books are so 20th century! Lol
31. August 2015 at 16:33
@ Brian,
The millions of jobs added in the 1980s and 1990s were accompanied by a much lower rate of increase in base money. What changed in the 2000s that such a hyperbolic increase was required? Does the level of base money matter? If not then lets pump it up more! If yes then what is the plan to bring it back down to the pre-2008 trend line?
31. August 2015 at 16:35
@E. Harding– thanks –ignore Sumner instead of me, who, like a medieval Catholic priest, can’t stand people finding out the truth for themselves but wants to be a gate-keeper.
Regarding the photo of Guiyang (which I assume is from the poorest region), note this was a “planned city” by Beijing, which has designs to make it a ‘data center of China’. Here is Quartz: “Guiyang, capital of Guizhou, China’s poorest province, tops this year’s report as the most promising city in the country; it has achieved much recently through infrastructure investment, but most impressive is its ambition to become a “data capital” of China.”
A planned city, like the mighty Magnitogorsk in the middle of Nowhere, USSR, does not prove Sumner’s point. (Wikipedia: “Magnitogorsk is an industrial city in Chelyabinsk Oblast, Russia, located on the eastern side of the extreme southern extent of the Ural Mountains”) (True, Magnitogorsk had iron, I believe it means ‘Iron Mountain’ in Russia, so arguably there’s a logical reason for having steel-making there; but with ‘data centers’ you don’t need anything but a fiat decree to set up one up)
31. August 2015 at 17:22
@ Tom,
The Cochrane post is very interesting. Is he right? I don’t know. I agree with him that the current economic situation is not that bad, especially given the messed up regulatory state of the country. But will it last? Is the economy as stable as Cochrane believes? Consider that this 6 year period of level rates required QE2 and QE3. Some say this intervention was required because the economy only works in an environment of ever declining interest rates. If so we are uncharted waters.
31. August 2015 at 19:40
Magnitogorsk means “magnet mountain city”; iron in Russian is zhelezo.
Charlie, the fact the Russians are largely broken in Europe does not mean the U.S. was responsible.
31. August 2015 at 21:21
@Dan W.: I have no idea if Cochrane is right or not.
1. September 2015 at 05:09
@S. Sumner:
I am looking at the chinese debt data (as provided by Steve Keen) and then I know what the chinese data are supposed to look like. And those chinese debt data are official government data. Just imagine what the chinese are going to look like if/when these debt data were faked as well, were understating the REAL total amount of debt and change in debt.
That gives me a confirmation that the chinese data are fake. In that regard I am even surprised to see you discussing the validity of the chinese economic data.
1. September 2015 at 05:22
benjamin cole: again, security spending wouldn’t cause a recession, even if we all agreed it was wasteful, because the demand is set by the government — it would just lower living standards. OTOH, if you build too much housing and infrastructure, the demand for new housing and infrastructure will be less than the supply and at some point you’ll have to stop building it, leading to recession.
Scott — Sure, it should be counted, but any industry can grow with massive government subsidies.
1. September 2015 at 05:35
Tall Dave—since China remains under-housed and in need of infrastructure…
And our “national security” has devolved into patronage…
But you raise an interesting point. The US, from the standpoint of classical economics, engaged in wild malinvestment in World War II. And yet our economy boomed through World War II, then into the 1950s and then went boom boom boom boom boom in the 1960s.
So I do not think malinvestment is the worst thing that can befall an economy—a tight central bank may be far worse.
1. September 2015 at 05:48
E. Harding, No China was poorer than India in the 1970s, and poorer than much of Africa.
Tom, It makes my hair hurt when I read those sorts of statements about MV = PY. Again, it’s always and everywhere a tautology.
I agree that reserves and T-bills are close substitutes at zero rates.
Dan, Why do you even comment here?
Talldave, I think you missed my point. The output is priced far below market value.
1. September 2015 at 07:07
benjamin — you’re confusing “need” with “demand” and “boom” with “massive reductions in living standards due to rationing and conscription.”
A lot of economists thought the post WW II demilitarization would lead to a resumption of TGD, but they were wrong.
Scott — Sure, but that assumes sufficient demand would exist at market prices to support the current level of ridership. If we gave everybody who wanted them free government-provided solar panels, the output would be below market value, but it wouldn’t mean the booming solar panel industry was lifting the country into economic growth
1. September 2015 at 09:10
@ssumner
-See
https://books.google.com/books?id=JAWBMOqwkJkC&pg=PA201#v=onepage&q&f=false
and
http://www.unz.com/akarlin/has-india-regained-its-shine/
Even if China was poorer than India in 1961 (which may be true), it still grew faster (1959-1961 excepted).
1. September 2015 at 09:57
Interesting comment here:
‘OTOH, if you build too much housing and infrastructure, the demand for new housing and infrastructure will be less than the supply and at some point you’ll have to stop building it, leading to recession.’
Comment: So which causes the recession? Building too much, or stopping the overbuilding. Or putting it more finely — was the recession caused by too much risky lending, or stopping the risky lending?
…
“To a certain extent, there is bitterness about China because of a feeling that the Chinese have gotten more out of the U.S.-Chinese economic deal than we have.”
– Since that has been judged cruel and racist, I can redefine it to say that the Chinese — and the U.S. financial elites — have gotten more out of the deal than the U.S. working class. I don’t have a solution for this issue, only the observation that it’s in bad taste to plunder the working class and then mock them.
1. September 2015 at 10:39
Charlie — heh, well, I suppose the government could keep overbuilding
foreveruntil they run out of money.1. September 2015 at 17:55
[…] couple of articles have been written attempting to defend Chinese GDP data. I have received questions […]
1. September 2015 at 19:37
Scott, do you have a response to Christopher Balding’s work on the failure to account for and adjust for China’s urban housing inflation?
Surely you don’t take national statistics at face value, right?
If housing inflation is properly accounted for, RGDP growth should be at least a couple points lower annually over the last ten years.
1. September 2015 at 19:50
Also I find your photo of Guizhou unconvincing. The Chinese love to build infrastructure and cities. I think we all know that by now. As far as whether those buildings generate a return on capital invested, I am skeptical. Those buildings look great but they won’t be maintained. They were probably built using substandard/hazardous materials (my brother in law is in that business). Many of them are are likely empty.
2. September 2015 at 02:48
I have to say you’re failing to address at least two very salient facts in this analysis:
1) The fact that almost all regional GDP growth statistics are given as significantly higher than the PRC’s national one – a statistical impossibility that can only be explained by massive data manipulation.
2) The fact that Li Keqiang (the Chinese premier, and an economist) himself stated that he does not take the GDP growth figures seriously, believes them to be “man-made” and instead relies on the same “obscure data” (i.e., the underlying data that any serious analyst would have to look at to assess the accuracy of the over all GDP figures) that you denigrate here. Are you really saying that the Chinese premier, the guy in charge of China’s economy, doesn’t know what he’s talking about and is a “conspiracy theorist” about the Chinese economy?
Of course China has seen significant growth in recent decades – anyone who (like me) speaks Chinese and has lived and worked long-term in the country can tell you this. The question is whether this growth has been systematically and purposefully over-stated, and I think there’s a strong case showing that it has.
As to what the real GDP figure is, Chris Balding has made a pretty good case for believing that it’s at least 10-30% lower. I think this merits a response from you.
2. September 2015 at 05:08
Car sales dropped 16% in july in China and one SSumner is still skeptical ?
2. September 2015 at 06:36
Talldave, Yes, that’s clearly true, but the massive overcrowding on subways also suggests the current price understates the value of the service being provided.
These subways systems are not boondoggles, they are well designed and very useful infrastructure.
E. Harding, I love how you brush aside 30 million people starving to death as if it’s not relevant for your “growth” data. Economics is supposed to be about human welfare.
But yes, both economies did extremely poorly in the 1960s.
Charlie, In the US housing production plunged in 2006 and 2007, but there was no recession. Only when NGDP growth plunged did we get a recession. The decline in one industry doesn’t cause a recessions, resources just switch over to other industries.
Mike, Yes, I’ve seen those claims.
I think there are errors in the accounts of all countries, The US CPI data has massive problems in accounting for housing. But that does not mean the data is not broadly correct. In the post above I explain why (despite the many errors in the data) I do not believe Chinese growth is 2 or 3 points lower than reported. I’ve been hearing that claim for 30 years. If it were true then by now China would be as poor as India. I’m not saying the GDP estimates are exactly correct, but they are in the right ballpark. The actual number is probably a bit higher or lower. In any given year they might be 2 or 3 points off, but not consistently. There is too much other data (such as wages) that corroborate the basic story.
FOARP, Yes, the regional data is obviously off. They have a financial incentive in boosting the data to look good.
I think it’s possible that China’s GDP is 10% to 30% lower than reported, but I also think it’s equally possible that it’s 10% to 30% higher than reported.
More broadly, I made a lot of specific claims in the post. I explained my views, and why I hold those views. I don’t see people like you and Mike addressing my specific claims. Where is my reasoning faulty?
I happen to think that a reasonably well educated person who spend a lot of time traveling around a country can estimate its GDP/person (relative to other countries) as well as the official GDP data. I don’t need GDP data to tell me that Switzerland is richer than France and Portugal is poorer, I can see that traveling around. I think you can get within about the 10% to 30% range just by observation. Check out China and Thailand, how do they compare? That sort of thing. I have done a lot of travel in China and I don’t see any reason why the claim that their GDP is 72% of Mexico’s is implausible. Maybe it’s 65% or 80%. But it’s not 40% and it’s not 110%–that’s obvious.
Willy, Not at all, I agree that car sales dropped 165 in July. I’m not at all skeptical. What does that have to do with this post?
2. September 2015 at 07:14
Mike, Chris Balding once claimed that 1/2 the housing units in Beijing were empty. I find those claims to be highly implausible, starting with the fact that the argument he relied on was completely incorrect (that you could measure occupancy by looking at lights on in the evening.)
And then there’s the fact that many new buildings that look finished are not in fact completed. But yes, no one denies there are plenty of empty buildings in China, and lots of shoddy construction. It’s still a fairly poor country.
Here’s an earlier response I did to Balding:
http://www.themoneyillusion.com/?p=15888
2. September 2015 at 10:56
‘Only when NGDP growth plunged did we get a recession.’
…
Looking at it from that framework and trying to speak the lingo here, you could say that NGDP growth plunged when lenders ran out of ways to pump more deposits into the system. The homeowners were extended by too many refinances and the mortgage bond holders (and levered derivative holders) panicked when foreclosures began to rise.
So a couple of things ensued — the borrowers couldn’t take out any loans and the lenders were undercapitalized. Consumer demand fell — car loans most notably.
The Fed did what it considered best and rescued the lenders, which stabilized the banking system, but it couldn’t and still can’t induce borrowers to step up.
2. September 2015 at 13:24
– I am VERY sceptical regardig the data produced by he chinese government.
– There were a number of (serious) people who have made a remarks about China.
– E.g. a GDP number is produced by for every quarter only one or two days after the quarter has gone by. In that regard, the GDP number is more of a target for the lower governments that is to be met. It takes much longer to calculate that number for our country, the US.
See here the chart produced by Steve Keen of chinese credit/debt growth. (GDP = Income + change in debt). Based on that chart chinese GDP is already decreasing (sharply).
https://www.dropbox.com/s/4cimwzlr40fyo3n/Chinese%20Debt-1.png?dl=0
Besies car sales there’s the news of Hong Kong exports dropping by some 8%. Singapore container turnover also dropped by 8. Singapore is THE shipping hub for freight between Europe & South East Asia & the Far East.
I agree, one should remain skeptical regarding the chinese data. But I am NOT skeptical of the skeptics. I think there’re a nmber of good indicators, that are NOT “manipulated” by the chinese gvernment.
2. September 2015 at 16:31
Charlie, You said:
“The Fed did what it considered best”
It’s best was not cutting interest rates two days after Lehman failed? Seriously? That’s the best the Fed could do? I know 4th graders who could do better.
Of course the Fed shouldn’t even try to get people to borrow money.
Willy2. Just answer one question—how did those indicators look in mid-2009. Just that one question, that’s all I want from you.
2. September 2015 at 20:21
Sumner: “I happen to think that a reasonably well educated person who spend a lot of time traveling around a country can estimate its GDP/person (relative to other countries) as well as the official GDP data.” – wow, staying at three to five star hotels in rich major cities in China can tell you about the poor countryside?
Sumner: “Mike, Chris Balding once claimed that 1/2 the housing units in Beijing were empty. I find those claims to be highly implausible, starting with the fact that the argument he relied on was completely incorrect (that you could measure occupancy by looking at lights on in the evening.)” – you mean poor people live in the dark? I live with poor people in this country, the Philippines, have stayed in their homes, and believe me they don’t keep the lights off at night to save money. When they are awake, the lights are on (even a small 3W LED bulb) or the TV is on.
Having gotten my daily dose of comedy from this site, time to move on…
3. September 2015 at 02:04
[…] kertovat jyrkemmästä hidastumisesta. Kuten esimerkiksi Scott Sumner selittää kirjoituksessaan Skeptical of the China data skeptics luvut eivät kuitenkin vaikuta täysin tuulesta temmatuilta. Virallisetkin ulkomaankauppaluvut […]
3. September 2015 at 05:07
Scott writes:
“It’s best was not cutting interest rates two days after Lehman failed? Seriously? That’s the best the Fed could do? I know 4th graders who could do better.”
Don’t you regularly say that low interest rates are not indicative of easy money, and in fact often indicate tight money? Are you talking out of both sides of your ass here?
3. September 2015 at 07:34
Ray, Who said anything about fancy hotels and avoiding the countryside?
When I read the Balding piece, I was in a huge apartment complex in central Beijing. I looked out the window and about 1/2 the lights were on. I asked the owner about the apartment complex “How many units are occupied?” She said all of them. Try it sometime in America, see what you find.
Comments? I thought not.
But thanks for supporting Balding’s lightbulb test, I would have been disappointed if you did not.
Beefcake, I’ve explained that 100 times, but perhaps you’re a little bit slow. Read one of my older posts on the Wicksellian equilibrium rate. You might learn something. Raising the target rate lowers the Wicksellian rate, compared to not raising the target rate. Is that clear enough for you?
3. September 2015 at 08:33
Just look at the chart Steve Keen produced (see the link in my previous post). Chinese credit growth remained high and even increased in 2009 & 2010 dramatically to over 30% (2010).
One should note one other thing: After having run large surplusses, the chinese balance of payment(s) are deteriorating and are already in deficit. Another sign of (financial) strain.
A rise in chinese income is on its own good but also puts china at a disavantage against other countries.
Regarding the drop in container traffic now:
http://www.seanews.com.tr/news/152463/Hong-Kong-port-down-9-5pc-in-July-to-1-7-million-TEU-Singapore-down-7-8pc.html
http://worldmaritimenews.com/archives/168991/global-trade-at-port-of-oakland-in-decline/
http://worldmaritimenews.com/archives/169150/hamburgs-container-traffic-drops-amid-weaker-trade-with-china-and-russia/
3. September 2015 at 09:46
LOL at Scott failing to keep track of his bullshit. Instead of suggesting I search your blog, why not simply direct me to where you resolve this inconsistency?
4. September 2015 at 03:38
[…] Here is Scott Sumner […]
4. September 2015 at 07:18
Beefcake, I just answered your question. If you can’t understand the Wicksellian equilibrium rate, then I’m afraid you are a lost cause. I don’t have time to teach you a course in monetary economics.
Willy2, You said,
“One should note one other thing: After having run large surplusses, the chinese balance of payment(s) are deteriorating and are already in deficit. Another sign of (financial) strain.”
OK, but the last data I saw (from a few weeks ago) showed China having the world’s largest CA surplus. Please provide a link to the data showing a deficit.
4. September 2015 at 09:49
Scott, about the only thing you could teach anyone is how to be clown-prince of the internet.
But just confirm: you are basically claiming that the natural rate for the U.S. is below 1/4%, right?
5. September 2015 at 06:06
Right now, yes. New month, might be different.
5. September 2015 at 08:37
I don’t have a link to an (web-)article available. It was buried deep in an interview with Felix Zulauf.
He said that total balance of payments were already negative with (only) a (small) CA surplus.