China’s Known Unknowns

China: Railway Freight Traffic 2003-2015

In a 7/15 release on Q2’s GDP, the Chinese National Bureau of Statistics said that China’s economy is “moving forward while maintaining stability.” Real GDP rose 7% y/y. The release observed that Chinese officials “unswervingly pushed forward the system reform and institutional innovation.” What does that mean? Recent events since then suggest that they are spending more time learning how to manipulate the financial markets.

They have long been charged with manipulating China’s economic data to show more strength. “China has a history of ironing out the ruffles in its growth figures,” according to a 7/15 article in The Economist. “No less an authority than Li Keqiang, now the premier, once said that local GDP data were ‘man-made and therefore unreliable’.”

The 8/14 The Guardian includes an article titled “Five reasons to be worried about the Chinese economy.” It observes:

“The Economist has developed an unofficial ‘Keqiang index’, based on Li’s own technique of looking at indicators such as electricity use and rail freight volumes to assess what is really going on in the economy.”

Sure enough, rail freight volumes were down 11.7% y/y through June. Electricity production was up just 2.8% y/y during July (using the 12-month average), the slowest since October 2009. Using similar measures, the London-based consultancy Fathom estimates China is really growing at 3.1% a year, not 7.0%!

Today's Morning Briefing: GDP Growth Is MIA. (1) The demand and supply sides of secular stagnation. (2) Abenomics lost its mojo during Q2. (3) Need to squint to see Eurozone’s growth. (4) China’s many known unknowns. (5) Keqiang index shows weakening Chinese economy. (6) Brazil’s masses protesting the messes. (7) US economy isn’t stagnating, but it isn’t booming either. (8) The Donald Trump of economies. (9) Gatsby has left the building.

China: Electricity Output 2000-2015