The Financial Times on Chinese data

A few weeks ago I suggested that Chinese data might be roughly correct.  Here’s the FT:

That China’s official economic data cannot be trusted is now received wisdom among western economists, investors and policymakers. To treat the numbers as authoritative is to invite ridicule: believers are naive at best and, at worst, stooges for Communist propaganda.

The problem with this conventional wisdom is that, aside from the closely watched and politically sensitive real gross domestic product growth rate, other official data vividly depict the slowdown in China’s economy that sceptics insist is being concealed. If there is a conspiracy to disguise the extent of harder times in China, it is an exceedingly superficial affair.

And The Economist:

Amid the extreme pessimism about China’s economy in recent months, it is tempting to conclude that rebalancing has failed. Just look at the car market, usually a good shorthand for the health of consumer demand. Automobile sales fell by 3.4% in August compared with a year ago, the third monthly decline in a row. Yet other forms of consumption are accelerating. A property recovery has stoked demand for furniture, home electronics and renovation materials, with sales rising an average of 17% in August from a year earlier. From jewellery to traditional Chinese medicine, buying has picked up in recent months.

Smartphone sales are down in volume terms but soaring by value, as shoppers move upmarket. Companies hit by the anti-corruption campaign under Xi Jinping, China’s president, are learning to prosper despite the new strictures. Distillers’ profits, which fell last year, have rebounded, pulled along by affordable brands for ordinary consumers rather than the exorbitantly priced bottles previously used as bribes for officials.

Overall, China’s retail sales have increased by 10.5% in real terms this year, well ahead of economic growth (officially 7% but closer to 6% according to many analysts). There are, as ever, doubts about the reliability of China’s data, though in this case it may be that the retail figures are too low. Nicholas Lardy, an expert on Chinese statistics at the Peterson Institute for International Economics, a think-tank, notes that retail numbers do not include services, a glaring omission since surveys show that services account for as much as two-fifths of China’s consumer spending.

Read that again.  An estimated 10.5% growth in real retail sales may be too low, the true figure may be even higher.  As my favorite blogger might say, “Scream it from the rooftops.”

PS.  I wish he’d take the lead from his co-blogger, and “shout it from the rooftops”.  Screaming really gets on my nerves.




28 Responses to “The Financial Times on Chinese data”

  1. Gravatar of ac ac
    30. September 2015 at 13:25

    “May be too low” also means “may be too high”

    Scream it from the rooftops

  2. Gravatar of Alfred Alfred
    30. September 2015 at 15:18

    Hey Scott,

    Unrelated to this subject, but do you have an opinion on the new paper by Aguiar and Bils that finds that consumption inequality tracks income inequality? One of your themes on this subject has been the lack of good consumption data.

  3. Gravatar of marcusbalbus marcusbalbus
    30. September 2015 at 16:01

    i think you are fighting too many battles. i think you have become consumed with being the gadfly. stay away from your battle with the “status of china economy”. you are over extended and starting to come across as shrill. btw, i’ve been a loyal tho mostly silent reader since 2008

  4. Gravatar of benjamin cole benjamin cole
    30. September 2015 at 16:29

    Good post. I think some FX traders were right that the yuan was overvalued. It may stiill be pricey.

    However, now you have investors-speculators taking positions on China and then influencing media representations on the nation and topic.

    Like any good story, the China doomsday story is believable by feeding biases.

    As Westerners, we distrust a socialist system of allocating resources, and further distrust China control of media and information.

    However China may grow economically for decades.

  5. Gravatar of ssumner ssumner
    30. September 2015 at 19:03

    Alfred, Consumption is certainly more equal than income, but growth in consumption inequality may certainly track growth in actual inequality. There are some tricky issues such as land prices in high cost areas, and the real/nominal distinction. A 2000 square foot condo on the Upper East Side is much more “consumption” than a 2000 square foot house in Tulsa, in dollar terms, but the Tulsa family might prefer their house.

    I haven’t studied the research, but have no reason to doubt the conclusion you describe. On the other hand, consumption levels of America’s poor have obviously improve dramatically since I was young (in the 1960s). If the data doesn’t show that then it is missing something.

    Marcusbalbus, You are probably right, but I have had a special interest in China because I visit so often. I’m actually just having fun with this debate, there are no theoretical issues involved—so it’s unlike the debate over QE or austerity, where a lot of important theoretical issues depend on the outcome.

    I actually don’t like the Chinese economic policy regime, so in that narrow sense I should be predicting failure, and indeed lots of libertarians have very negative views on the outlook for China. But I don’t, despite all those SOEs.

    Ben, I agree about the yuan being overvalued.

  6. Gravatar of Benjamin Cole Benjamin Cole
    30. September 2015 at 21:40

    China Cuts Down Payment for First-Time Home Buyers
    The Wall Street JournalSep 30 05:44 AM

    Seeking to boost the flagging economy by reviving the vital real-estate sector, China’s central bank reduced the minimum down payment for first-time home buyers to 25% from 30% in all but a handful of cities.


    Really? Does this rather heavy downpayment system sound fragile? Compared to the USA?

    So which nation will experience the next bust in residential real estate?

    I know there are other factors, such as where housing is built even before it is purchased. The ghost cities blah, blah (turns out there might be one in all of China).

    And in the U.S., since the supply of housing is artificially constrained by government (think local zoning, and single-family detached homeowners groups), maybe we see no housing bust in the U.S. for a while. Due to government intervention and NIMBY politics.

    But really, China homebuyer downpayment requirements strike me as more conservative than those of the USA.

  7. Gravatar of Ray Lopez Ray Lopez
    1. October 2015 at 06:27

    Sumner is shrill about whether China is slowing or not, something that’s nothing more than a ‘mouth bet’, worth nothing, for him. Typical academic.

    The most interesting part of this article was this: “services account for as much as two-fifths of China’s consumer spending” – note ‘services’ are 40% of China’s GDP and 70% of most “Western” countries. Shows China is nothing more than a glorified Ireland: a place where the West outsources their manufacturing (rather than services as in Ireland). China is nothing more than fancy hired help.

  8. Gravatar of DF DF
    1. October 2015 at 10:22


    Retail sales are officially up 10% YoY, but manufacturing PMIs (Caixin and HSBC) show contraction since early 2015. How do you resolve this?

  9. Gravatar of Steven Kopits Steven Kopits
    1. October 2015 at 10:44

    Please find the first edition of my China Tracker at the link below. I personally found China confusing, so I decided to put together some graphs to try to help my clients (and me) better understand developments in China.

    Some unrelated, but interesting, graphs at the blog, too.

  10. Gravatar of Derivs Derivs
    1. October 2015 at 14:00

    The 10%+ number again….

  11. Gravatar of benjamin cole benjamin cole
    1. October 2015 at 16:01

    The other notable aspect about China is that their reserve requirements for banks are far higher than those of US banks. I am not sure how reserves are measured and whether it is apples to apples but the reserve requirements in China are about 18% for banks.

    So we have a picture of a Chinese financial system that requires very large down payments to buy a house and requires banks to keep a lot of money in reserves.

    I will concede the whole reserves question has become moot, as evidently central banks can merely print money and stick it into banks and call it reserves as we have done in the United States.

  12. Gravatar of ssumner ssumner
    1. October 2015 at 17:52

    Ben, I think FHA requires 3% down. We are worse than communist China!

    Ray, You said:

    “Shows China is nothing more than a glorified Ireland:”

    One of the all time funniest things you’ve every said. You do know that Ireland is a rich country and China is a poor country, don’t you? And so you think comparing China to Ireland somehow reflects poorly on China? Bizarre.

    DF, Chinese PMIs are not reliable, just as US PMIs are not reliable. Or at least they haven’t been in the past.

  13. Gravatar of DF DF
    1. October 2015 at 18:14


    Two independent PMIs are not reliable but one official retail sales aggregate is reliable? And in what sense ‘reliable’? As a predictor of growth? I don’t care in a naive comparison of the predictive power of either on growth BECAUSE I DON’T KNOW WHICH ONE I TRUST MORE.

    In a typical economy I have a strong prior that the correlation between manufacturing sentiment (imminent orders) and subsequent retail sales to be pretty strong. Stronger than one being flat over a 12 month period and one increasing by 10%.

  14. Gravatar of ssumner ssumner
    1. October 2015 at 18:26

    DF, Do you actually know anything about Chinese data? Sorry to be rude, but it looks like you don’t. Please don’t assume I’m equally ignorant. The moronic media reports that a figure below 50 means contraction, but that’s not what it means. This link shows the PMI going back 4 years, notice it averages under 50. It was usually under 50 in 2011-13, when everyone agrees China was growing really fast.

    It doesn’t mean what you assume it means.

    BTW, there are multiple Chinese PMIs and none of them are reliable. The US PMIs aren’t either, and I don’t recall anyone claiming the BEA is a vast conspiracy to hide the true GDP growth rate in America.

    This shows both Chinese manufacturing PMIs:

  15. Gravatar of Ray Lopez Ray Lopez
    1. October 2015 at 21:36

    Sumner correctly points out US data is bad, something the economist Gene Epstein at Barron’s once pointed out a couple of decades ago, yet Sumner thinks printing money to hit an NGDP figure–even if the economy does not respond–is a smart strategy. Luckily, money is largely neutral so this crackpot idea will not, unless carried to the extreme, harm the US economy.

  16. Gravatar of Benjamin Cole Benjamin Cole
    1. October 2015 at 22:50

    According to reuters, BalckRock is buying China real estate….

    Business News | Mon Sep 7, 2015 6:39am EDT Related: CHINA
    BlackRock sees new opportunity in China real estate


    BlackRock Inc is ready to increase its China real estate portfolio exposure as it sees good entry points following the weakness in the nation’s economy and credit environment, a senior executive of the U.S. money manager said on Monday.

    John Saunders, Head of Asia-Pacific Real Estate at BlackRock, told Reuters the fund would target mass-affluent shopping malls and grade “A” and “B” offices in China’s first- tier and selective second-tier cities for investments.

    “We see the current malaise as a good entry point that we believe will throw up some good opportunities,” Saunders said in an interview at his office in Hong Kong’s central business district.

    New York-based BlackRock, the world’s biggest asset manager, oversees about $8 billion in property investments in Asia.

    “For a period in time we didn’t do a lot in China, because the pricing didn’t seem conducive for us to make returns, whilst underwriting reasonable levels of growth. Now that picture has changed and China has become our key market for sure. It has been softening for the past 18 to 24 months,” Saunders added.

    Ҽ BlackRock secures $400 million China investment quota boost
    Yields in Chinese retail real estate investment markets have compressed to around 6 percent in the first half of this year due to expensive land cost and excess supply, according to property consultancy Colliers. They were about 9 percent a decade ago.

    But yields are holding up relatively well for them even as capital values have weakened, Saunders said. BlackRock said it owns a shopping mall in the southwestern city of Chengdu….


    Anyone can make mistakes, including BlackRock. But they are investing GP money alongside client funds, a major institutional investor, I assume with good research and contacts inside China.

    Really, China is going to collapse, and BlackRock is clueless?

  17. Gravatar of Ray Lopez Ray Lopez
    2. October 2015 at 03:47

    @Ben Cole – not excellent blogging: “Really, China is going to collapse, and BlackRock is clueless?” – institutions have a mandate to invest Other People’s Money. There were major firms invested in March 2000 at the top of the stock market bubble and in 2008 in financials; proves nothing.

  18. Gravatar of benjamin cole benjamin cole
    2. October 2015 at 06:37

    Ray Lopez—es verdad mi amigo. But BlackRock invests GP money alongside LP. Not only OPM.

  19. Gravatar of DF DF
    2. October 2015 at 06:57


    I don’t care that retail sales growth is usually a more reliable predictor of GDP growth. I actually agree with you there, at least for the US. I also don’t care what PMI says about growth in 2011-2013. In fact I only care if the tuple of PMI and retail growth is likely, and unfortunately it’s not.

    The foundation of your argument is that retail is growing at 10% therefore 7% growth is roughly right. You put a lot of faith on the accuracy of China’s aggregate retail numbers implicitly. But for someone who does not, there is nothing to yell from the rooftops.

    In the US, manufacturing PMI and YoY retail sales (some services included, sure) stays pretty much in lock step with each other.

    I expect the relationship to be stronger in China because retail is a bigger share of Chinese disposable income and manufacturing contributes more to Chinese income than in the US. So the discrepency between PMI and retail growth has a very big z score right now, so to speak. Sorry if I don’t trust the official PMI either, it’s nothing against you personally.

  20. Gravatar of cbu cbu
    2. October 2015 at 08:54

    The foundation of the argument is that for China, manufacturing PMI and the overall economic growth is not positively correlated. The manufacturing PMI can be less than 50 even when the Chinese economy grows relatively fast.

    After 30 years of rapid growth, the Chinese economy probably will keep growing at a relatively fast pace before the vast majority of Chinese have access to flushing toilet and hot shower.

  21. Gravatar of John Bailey John Bailey
    2. October 2015 at 12:28

    Two questions:

    1) Is the source of the retail data numbers the same as the GDP numbers?

    2) How large is the consumer/retail segment of the economy compared to the manufacturing. I have seen numbers that investment makes up 48% of the economy

  22. Gravatar of ssumner ssumner
    2. October 2015 at 13:39

    DF, You said:

    “Sorry if I don’t trust the official PMI either, it’s nothing against you personally.”

    I don’t follow your argument. I also don’t trust the PMI, because it’s demonstrably not accurate.

    John, I can’t answer those questions.

  23. Gravatar of DF DF
    3. October 2015 at 05:20


    Let me rephrase.

    In the US, the likelihood of an official PMI reading of 50 and an official retail sales growth of 10% YoY in the same month is less than 5% by my estimation. That’s because these two measurements of the economy are co-integrated. I expect their co-integration to be at least as strong in China because there is a casual bridge: producer sentiment does set some floating segment of manufacturing labor contracts and wages, thus it has a direct impact on aggregate disposable income. There may also be a bridge connecting producer sentiment to consumer demand, but it’s not necessary for my argument. Put all this together, this does not bode particularly well for the hypothesis that the official Chinese retail growth is consistent with independent PMI.

    You say PMI is demonstrably inaccurate (in predicting what, I never got a clear answer from you), but I find PMI simply to be a weaker predictor of GDP growth in the US. Yes indeed, retail sales growth is a better predictor of contemporaneous GDP growth, but (partly because of their co-integration) PMIs work just not as well. You say PMIs were low in 2011-2013 “when everyone agrees China was growing really fast.” But do you mean 9% “really fast” or 5% “really fast”? The distinction is important to me, and I don’t believe the Chinese economy was doing better than trend at the time (e.g., 2012Q2 was the first time in forever the CNY depreciated).

    So all this is saying your official retail sales are no better than my independent PMI (Caixin or HSBC, I don’t care) at this point because we have to discount the official statistics (otherwise your original post is pointless). If you think I am exaggerating about my proposed distrust of all official statistics, consider that employing 1,000 statisticians to make sure cooking the books doesn’t violate Benford’s law is probably the LEAST pathological thing China can get away with. I bet they all share the same dormitory in Anhui.

  24. Gravatar of ssumner ssumner
    3. October 2015 at 08:11

    DF, You said:

    “You say PMIs were low in 2011-2013 “when everyone agrees China was growing really fast.” But do you mean 9% “really fast” or 5% “really fast”?”

    It makes no difference whether it’s 5% or 9%, the PMIs said the manufacturing sector was SHRINKING. Yes or no, do you believe hat?

  25. Gravatar of DF DF
    3. October 2015 at 10:58


    I have no idea how you can be this blasé: “It makes no difference whether it’s 5% or 9%”. Of course it matters if you believe there is a relationship between growth and ANY OTHER QUANTITY. A reading of (PMI=45,growth=+5%) versus (PMI=45,growth=+9%) certainly makes a difference to me.

    When you say shrinking, what quantity do you mean? Revenue, volume, wages? I am going to assume revenue so we can have a concrete discussion (my answers are analogous for all quantities). No, I don’t think the revenues were shrinking, as new orders are less of half of the PMI index and there was plenty of exogenous information to suggest that revenues were increasing. However, I do believe manufacturing revenue growth did slow, and probably expected future revenues did shrink.

    But why does it matter if PMIs have a bias? Is it critical that 50 be a special number to you? If the threshold for expanding/shrinking is really a reading of 42.7, what difference does it make for our arguments?

  26. Gravatar of Scott Sumner Scott Sumner
    4. October 2015 at 09:01

    DF, You were the one who started this discussing by claiming that a PMI below 50 implied manufacturing was shrinking. I pointed out that was wrong. Now you keep changing the subject, saying what difference does it make if Chinese industry wasn’t shrinking. It makes a big difference. I claim China is growing, and other people like Tyler Cowen claim the Chinese economy is shrinking.

    The current PMIs are not very different from 2012. We know China was growing fast in 2012, ergo . . .

  27. Gravatar of DF DF
    4. October 2015 at 18:33


    I’m less certain now that a detailed discussion of joint probabilities is possible on this board. In retrospect, I should have just commented on you using official statistics to corroborate official statistics and left it at that.

  28. Gravatar of ssumner ssumner
    5. October 2015 at 10:19

    DF, You said:

    “In retrospect, I should have just commented on you using official statistics to corroborate official statistics and left it at that.”

    Please reread my post, I certainly did not do that. Indeed this post suggests the official figures are wrong.

    But yes, you would have been better off not claiming that a PMI below 50 implies manufacturing is shrinking, because it doesn’t.

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