Monday, July 18, 2005

What Goes Up...

Ever since I read the news that Chinese oil consumption fell in the last quarter, I've been planning to write a post pondering if this is a sign of a drop in the Chinese economy. From the NY Times article, which calls the drop in consumption "sudden and mysterious" comes this:
After growing 11 percent in 2003 and 15.4 percent last year, China's overall oil use declined 1 percent in the second quarter from the comparable quarter a year earlier, the agency said. The drop is the latest in a series of unclear and often conflicting indications about whether the Chinese economy is still growing strongly.
But alas, I didn't have to write the post on the possibility that China's economy is in decline because Survived SARS had already written it. China Business Strategy also covered the state-owned enterprise (SOE) angle. All I really have to add is that anyone who thinks that such analysts are overly optimisitic (or pessimistic depending on your point of view) about the weakness of the Chinese economy, read "Asia Minor: Is China's Economic Boom a Myth?" by Joshua Kurlantzick in the New Republic (16Dec02), which is online for subscribers only.
A few highlights to convince you to go read it:
[D]espite all the lattes sold at Starbucks Beijing, China is only making positive economic strides, not revolutionary leaps. The Chinese government claims the economy has grown by 7 percent to 10 percent per year for the last two decades. But, apart from the export sector-China's economic brightspot, but only about 20 percent of GDP-the government's numbers do not add up.
Looking at energy data, independently compiled GDP figures and other statistics, [economist Thomas] Rawski concludes that, between 1998 and 2001, China grew by approximately 4 percent rather than the 7 to 10 percent claimed by the government.
How could Rawski's numbers differ so much from Beijing's? The primary explanation is that China's national economic statistics, which are compiled from provincial data, have no safeguards against political meddling. When the central government declares its growth targets early in a year-in 1998, for example, Beijing announced that 8 percent annual growth was 'a political responsibility'-provincial officials simply make up numbers to substantiate them. 'China's statistics are based on a Soviet-type system where each town and province reports figures, rather than having a national organization do the reports, and many local officials I have met with feel intense pressure to meet targets,' says Joe Studwell, editor of the China Economic Quarterly.
Other prominent economists share Rawski's doubts about China's reported growth rates. Leading Chinese economist and writer He Qinglian told me that, in 2000 and 2001, she traveled around southern China, stopping into provincial officials' offices. When she asked them for their provincial GDP statistics and their methodologies, many were unable to provide either; when they did provide them, the numbers almost never added up.

Read the rest. Basically what this all boils down to is that no one, Chinese or foreign, knows the true size of the Chinese economy. While many have offered educated guesses, no one knows how fast the Chinese economy is growing. I find that quite troubling and worry that the intelligence analysts and punditry at large may be as wrong about China as they once were about the Soviet Union.