Last week the Chinese GDP number was released, the annualised figure for the September quarter came in at 9.1%. This was slightly below expectations of 9.3% but positive because it points towards a potential soft landing for the Chinese economy. A soft landing is the ideal outcome for the region because it means there is enough economic growth to avoid recession but not too much that it causes severe inflation.
The validity of the Chinese GDP number can easily be challenged because it came out just 19 days following the end of the quarter and isn’t subject to adjustments as other national GDP numbers are. This is a remarkable feat for a country of over 1.3bn people, considering it takes New Zealand 84 days (population 4.1m), Australia 69 days (population 22.7m) and the United States 27 days (population 312.5m) for the advanced estimate which is subject to adjustments once the figure is finalised around 90 days later.
Either China has an exceptionally effective system for collecting economic data or there is a bit of creative accounting built in the number. Late last year Wikileaks reported that a senior Chinese official, preferred to rely on electricity consumption, rail cargo volumes and the amount of bank loans disbursed than the official statistics. Annual growth in rail cargo volumes has been tracking along at around 6% for the past couple of months (5.7% in August), while electricity consumption showed 12.2% growth for September. The bank loan disbursement numbers are more difficult to find without the help of an advanced course in Mandarin.
While the official GDP number lies between the two above indicators, the divergence between all three and the speed at which an official number can be produced leaves large question marks over the credibility of the data. The Australian economy is leveraged to the Chinese growth story because of the companies providing the raw materials enabling China to continue on the path to growth.
Eventually China may be a victim of its own success because the current levels of economic growth, real or otherwise, cannot be sustained indefinitely. We hope that there is some substance behind the official statistics and the central government is able to guide the Chinese economy to a soft landing.
Sam Gibb