Jun 29, 2012

Better Late Than Never - Chinese Data Is Publicly Questioned

We have thought for some time that data published by the National Bureau of Statistics and other official organs of the Chinese government should not be taken at face value. See for example Can One Trust China's Economic Statistics? written in early February. A week ago The New York Times came out with a detailed account of much of the mounting evidence in Chinese Data Mask Depth of Slowdown, Executives Say.

There are many reasons to suspect that, even without having actual evidence that falsification is happening. And we don't always need evidence, because in order for an investor to be profitable
in the medium to long term, a high degree of confidence (as opposed to proven certainty) is sufficient.

When official figures contradict a similar data point calculated by the private sector, this may
indicate manipulation. The HSBC PMI and the official China PMI have been showing different views of the manufacturing sector since roughly the beginning of 2012. And the gap is larger than what could possibly be explained by differences in sample and surveying method.

In an economy with a large state-controlled sector, rampant corruption and lack of free press, economic statistics are more likely to reflect what the chief of the publishing institution thinks that his superiors in the central government expect of him, rather than the actual state of the industry or sector they cover. It is great that the official western media seems to have finally caught on.