More Fake Chinese Statistics

An article on Caixin Online is an interesting example of how national and provincial statistics are "compiled" in China. Schoolhouse Shock exposes the dismal state of public education in poor rural areas. This is of course terrible for the long-run economic prospects of the residents (and the overall economy). But it also shows how all the educational statistics are completely fabricated. Regarding drop-out rates, the article says:

Some officials at schools in Gansu Province said on condition of anonymity that the dropout rate is roughly 30 to 40 percent in junior high schools.
Provincial government statistics put the dropout rate at 0.6 percent. Central government figures for Gansu state the dropout rate is lower than 3 percent and declining.

This should be a wake-up call to those tempted to give China's National Statistics Bureau the benefit of the doubt. If educational statistics are so far from reality, why would the economic ones be any better? 

A Contrarian View on China's Currency Move

The latest push by Beijing to accelerate the opening of China's capital account to foreign investment is undoubtedly a good thing. A good thing for the world as it helps reballance the global economy. However it is being hailed as a cure-all for China's slowing economy in China Currency Move Nails Hard Landing Risk Coffin. Not meaning to pick on Paul Markowski here (although as long-term adviser to Beijing he is hardly impartial) - this is the general view across the financial media at the moment.

We believe it is also incorrect. Beijing is clearly aware of the undeserved benefits that acrue to the

The Landing Will Be Hard

As we have opined in previous posts on its banking system and real estate market, China's economy is in a pretty bad shape. This is corroborated by a couple of recent economic statistics. Last Sunday, China's National Bureau of Statistics published the new housing numbers for February, saying that

Comparing with the previous month, among 70 medium and large-sized cities, the sales prices of newly constructed residential buildings declined in 45 cities while that of 21 cities remained at the same level. For 4 cities with increasing prices month-on-month, the increases were 0.1 percent.

The real economy (as opposed to asset prices) is not doing great either. On Thu HSBC's manufacturing

China's Wen Admits Banking System Dysfunctional

China's outgoing premier Wen Jiabao seems to have struck a sentimental note in his closing remarks at the NPC (China's parliament). This is completely normal but what is a bit surprising is that he pretty much admits China's system of financial intermediaries is dysfunctional. According to Caixin he said:

The problem is that companies, especially the smaller ones, need huge amounts of capital but, banks can't satisfy them. Meanwhile, the market is awash with private capital seeking opportunities."

China's state-owned banks pay negative real rates to depositors, while funneling capital to strategic