Donnerstag, 16. April 2009

China's enigmatic GDP data

I've been reading China's Q1 2009 GDP release, and no matter how hard I try, I can't imagine how the numbers can possibly make sense:

Total GDP grew 6.1 % year on year.

GDP can be decomposed into consumption, investment and foreign trade surplus.

Let's see:

- Investment was up 28.8 %.

- Consumption is not stated, but retail sales, which should be a good proxy for total consumption, are up 15.9 %.

- The trade surplus was up 50 %.

Yes, all components of GDP grew much faster than total GDP!

How can that be? I have no idea.

Some comments on the details:

- I find it extremely strange that investments are up 29 % in the context of a sharp economic slowdown - they should be growing less than the overall economy, not more. Who is doing all this investing?

- Overall consumption might have grown less than retail sales. However, we are also told that services (= "tertiary industry") have been growing faster than manufacturing (= "secondary industry"), so if anything, total consumption should have grown faster, not more slowly than retail sales.

- We are told that retail sales of furniture (as part of total retail sales) are up 24 %. No idea why they singled out furniture sales, probably because growth was particulary high. However, separate statistics show that production of furniture in Jan/Feb was only up 1.8 %. How can sales be up 24 %, when production is stagnating?

Kommentare:

  1. Investment: Maybe the Gov.? They spent vastly on various 'projects'.This kind of behavior hoist the GDP.

    Consumption: Since retail sales belongs to tertiary industry which grows faster than manufacturing, then the overall consumption should lower than retails sales, but not higher.

    Yvonne

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  2. @Yvonne

    Unfortunately, we are not told anything about government spending. I don't know why, but the data release only tells us about "investments", "retail sales" and "foreign trade". I would think that government spending is easier to compile than the other data, but still they choose not to tell us.

    If you think that investments are helped by government "projects", you might be right. Unfortunately, that still doesn't explain how the various GDP components add up to 6 % growth.

    By the way, reported investment growth has been very large for many years: Total investments grew 26 % in 2008, 25 % in 2007, and 24 % in 2006. In other words, investments have been growing much faster than GDP for many years.

    In fact, China has one of the world's highest investment rates, at roughly 50 % of GDP. Most Western countries are around 20 %.

    It makes sense that China invests more, as it is growing fast and is accumulating both production capital and private capital (e.g. residential housing). Still, it's bizarre that the proportion of investment to GDP keeps going up to ever more dizzying heights.

    As for consumption, I think you are confusing something:

    Technically, the "retail industry" is part of the "tertiary industry" in the sense that retail value-added (e.g. wages paid to staff) is tertiary.

    However, retail sells goods which are produced by manufacturing. Therefore, 16 % growth in retail sales means that consumer-goods manufacturing must normally be up at a similar rate.

    Unless

    (a) imports are up (in fact, they were down sharply) or

    (b) there was massive destocking (while this was definitely true along the global supply-chain, I'm less sure if this was also true for domestic Chinese production)

    Hmmm. I suppose destocking might have been a factor explaining how retail sales grew fast, whereas production of consumer goods grew less. As destocking can't go on forever, the disconnect would have to disappear soon, though. Anyway: We would know if China Statistics told us about inventories. Unfortunately, it doesn't (at least not that I'm aware).

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  3. Here's some official data regarding production of consumer goods in Jan/Feb (year-on-year):

    - Automobiles: -1.7 %
    - Washing machines: +6.8 %
    - Refrigerators: -0.1 %
    - Household Freezers: +1.4 %
    - Air Conditioners: -26.9 %
    - Handphones: -11.2 %
    - Color TVs: -21.4 %
    - Furniture: +1.8 %
    - Textiles: + 5.1 %
    - Tobacco: +5.6 %
    - Print/Media: +5.5 %

    None of these categories gets close to the 16 % reported growth of retail sales. So the destocking must have been massive (though some categories might have been hit by plunging exports as well).

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  4. Thomas, seems like FTD is reading your blog:

    http://www.ftd.de/boersen_maerkte/aktien/marktberichte/501390.html

    "Das Kapital: Nokia im Tollhaus
    [...] Nicht minder ulkig ist das angebliche BIP-Wachstum Chinas von 6,1 Prozent im ersten Quartal 2009, denn angesichts des Rückgangs des industriellen Elektrizitätsverbrauchs um 8,38 Prozent muss die Energieeffizienz des Landes wohl geradezu explodiert sein."

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  5. I've read something before, consumption only weights 35% of GDP, trade weights around 30-35%. Then 33% left for investment + gov.'s spending.....

    I've heard that selling lands by high price is one of the ways for province/city gov. to improve their local GDP, which caused 'Investment' to climb highly. And I feel like that lots of infrastructure projects of Gov. doesn't really mean energy-intensive (it depends on its pecentage among overall construction projects in China ), but truely expensive (weighten 'Investment').

    And I doubt that retail growth and manufacturing growth is 1:1

    Yvonne

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  6. @Yvonne

    Regarding components of GDP: "Trade" is far from 30-35 % of GDP. While exports are around 35 % of GDP, the relevant number for GDP purposes is the trade surplus, i.e. exports minus imports. And that's less than 10 % of GDP (which is already a huge number for a large country such as China).

    The latest official statistics for China's GDP by expenditure are for 2006:

    Consumption (incl. government!): 50 %
    Investment: 43 %
    Net exports: 7 %

    Source: http://www.stats.gov.cn/tjsj/ndsj/2007/indexeh.htm

    Government consumption is roughly 1/4 of total consumption (also according to official 2006 numbers). Not sure to what extent "government investment" is part of "investments".

    As investments have grown much faster than GDP in 2007 and 2008, they should be around 50 % as of 2008, and again substantially higher in 2009, if Q1 2009 continues.

    Regarding your point about selling land at a high price to boost GDP: I don't know how Chinese provinces calculate their GDP, but under normal circumstances, land sales have nothing to do with GDP. GDP is about producing goods and services, not about selling an existing piece of land.

    Regarding retail growth vs. manufacturing growth: Based on the assumption that everything sold by retailers consists of manufactured goods (apart from non-processed agricultural goods, the sale of which is unlikely to grow by much), how can retail sales grow faster than the production of consumer goods? (Assuming that imports didn't go up, and also assuming that the retail margins didn't go up - both appear to be reasonable assumptions, as far as I can tell) The only reason I can think of is destocking, i.e. negative inventory changes.

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  7. You're right about the 'Trade' part, it was my mistake, 35% is not 'trade', but 'export'.

    About 'selling lands' part, most of lands are sold for estate, which are sold at much higher price, therefore it contributes to GDP (my theory).

    Concerning the relation of retails growth and manufacturing growth, I disagree with your assumption that everything sold by retailers consists of manufactured goods. I think it's better to dig it deeper about the weight of non-manufactured goods and manufactured goods in retails. Even if the assumption you used was 100% correct, it's also lame to lead to the conclusion: Retails growth and manufacturing growth should be similiar, unless it's based on another presumption: All manufactured goods at end go to retail (I assume selling vast batch of steels, cements and bricks for construction project doesn't count retail).
    Of course you're right about destocking,which I agree with you.

    Anyway since the data of retail growth is just from some ''designated size'' enterprise, so 16% can not represent national retail growth.

    Yvonne

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  8. @Yvonne

    not sure what exactly you mean by "land sold at much higher price, contributing to GDP".

    Retail vs. manufacturing: I am certainly not arguing that all manufacturing goods are sold via retail. I am saying that all retail goods have been manufactured, but obviously only consumer goods are sold via retail, the rest is used for investment.

    By the way, according to a news release on the Statistics China website, "retail sales" also includes "hotel accommodation and catering" (presumably, "catering" means "restaurants"). That wasn't how I understand retail, but if that's the definition, then so be it. Neither hotel accommodation nor restaurants involve manufactured goods, but the news release also tells us the growth rate of retail salse excluding those two items, and it is only a bit lower. Apparently, "hotel accommodation" was booming in Q1 (rising much faster than overall retail sales). Not sure how that squares with all those empty luxury hotels in Beijing, Shanghai and Guangdong, though.

    As for the "designated size enterprises": So you are saying the released retail data may not be meaningful, because it only covers a portion of the retail trade (large stores above a certain size)? Possible. Which would lead to the question what purpose the data serves, if it is indeed true that it is not a good proxy for "total retail sales".

    Anyway, more on this in a separate post tomorrow, as I managed to find some more data. Not that this data makes things any clearer, unfortunately.

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  9. ''Retail vs. manufacturing: I am certainly not arguing that all manufacturing goods are sold via retail. I am saying that all retail goods have been manufactured, but obviously only consumer goods are sold via retail, the rest is used for investment.''-------from Thomas
    Yes, so growth of the consumer manufactured goods could be similar as the one of retails, but not the growth of whole manufacturing industry (the grwoth of 'investment' manufacturing could be negative, which will drag the whole growth of manufacturing down) ---- Waht I always try to say is as the same as I stated earlier: Retails growth and Manufacturing growth is not 1:1.
    Yvonne

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  10. Quote: "the growth of 'investment' manufacturing could be negative, which will drag the whole growth of manufacturing down"

    Sure, in theory it could. The problem with respect to the data is: We are told that investments also grew at 29 % compared to last year.

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