Like in many other emerging-market economies, China's official economic data leave a lot to be desired. Foreign companies considering a China play involving inward-bound investments need to ponder this fact with great care. Beijing should also come to the realization that economic numbers provided by governments require the same conditions of transparency required of private enterprises.
Trapped in the mind-set established under central planning, Chinese officials tend to offer numbers to make the central authorities happy instead of offering accurate data. This is evident in a report by China's National Bureau of Statistics that uncovered more than 62,000 violations of regulations on collecting and compiling economic figures in 2000.
Only Chinese data on the money supply and trade are considered reliable because they can be cross-referenced against data from trade partners. Meanwhile, fundamental measures like GDP growth and unemployment figures are of dubious quality.
The official unemployment rate is wildly understated by counting only the registered unemployed in the cities. The entire rural population and many blue-collar workers like those put on temporary leave because of poor performance of their enterprises are left uncounted. And only workers that are recently laid-off are counted while those engaged in new job searches are not.
From 1995 to 1999, the number of state-owned enterprises engaged in industrial activities fell to 60,000 from nearly 100,000. Yet the number of unemployed workers in urban areas during that same period rose from 2.9 percent to 3.1 percent. More recently, reports of over 5 million workers being shed by state-owned enterprises resulted in only slightly larger increases the reported jobless rate for urban areas, from 3.1 percent to 3.6 percent.
Data on GDP are scarcely better. Although China has a less advanced system of national income accounting, it quickly released final numbers on last year's growth that indicate growth of 7.3 percent. Not only do these figures defy the logic of an ongoing global slowdown, they do not appear to be internally consistent. A frequently cited inconsistency is that the usage of electrical power suggests substantially less would be consistent with the official growth estimates.
China has become the second-largest recipient of foreign direct investment in the world, after the US. Foreign investors rely heavily upon data recorded by local statisticians concerning market conditions. So legitimate questions arise whether billions of foreign-investment dollars were spent wisely. A partial answer is that the wide majority of foreign investors either loses money or is far behind in its projections on return on capital.
Without reliable and independent corroboration of official data, a useful rule of thumb should be applied to authoritarian regimes. This is to double the numbers relating to bad news and halving those that report something good. This would put the actual economic growth closer to 4 percent or possibly less.
Even this might not be enough of an adjustment. Some outside observers estimate that China's actual urban unemployment is closer to 15 percent or even 20 percent.
Beijing has openly recognized the need for improved data collection and processing and has employed foreign consultants to oversee the development of such methods. The National Bureau of Statistics has agreed to adopt data systems recommended by the IMF.
Of course, there have been some adjustments and improvements in data quality. Dai Xianglong (戴相龍), governor of the People's Bank of China, has offered a clearer look at the mountain of bad debt held by state-owned banks. It is now apparent that nonperforming loans account for just over 26 percent of total lending from the big four state-owned banks with most of the delinquent borrowers being state-owned enterprises.
However, analysts believe a more accurate proportion for nonperforming loans is 50 percent. If Beijing cannot come clean about the extent of these loans, it may not be able to muster the political will to demand job cuts and management changes as well as the liquidation and sale of assets needed to purge bad loans.
Despite a rosy picture painted by China's data gatherers, there are tough times ahead for the Middle Kingdom. Unless they come clean soon, the leaders in Beijing might be overseeing the equivalent of an Enron meltdown on a national scale.
Christopher Lingle is global strategist for eConoLytics.com and author of The Rise and Decline of the Asian Century.
After nine days of holidays for the Lunar New Year, government agencies and companies are to reopen for operations today, including the Legislative Yuan. Many civic groups are expected to submit their recall petitions this week, aimed at removing many Chinese Nationalist Party (KMT) lawmakers from their seats. Since December last year, the KMT and Taiwan People’s Party (TPP) passed three controversial bills to paralyze the Constitutional Court, alter budgetary allocations and make recalling elected officials more difficult by raising the threshold. The amendments aroused public concern and discontent, sparking calls to recall KMT legislators. After KMT and TPP legislators again
Taiwan faces complex challenges like other Asia-Pacific nations, including demographic decline, income inequality and climate change. In fact, its challenges might be even more pressing. The nation struggles with rising income inequality, declining birthrates and soaring housing costs while simultaneously navigating intensifying global competition among major powers. To remain competitive in the global talent market, Taiwan has been working to create a more welcoming environment and legal framework for foreign professionals. One of the most significant steps in this direction was the enactment of the Act for the Recruitment and Employment of Foreign Professionals (外國專業人才延攬及僱用法) in 2018. Subsequent amendments in
US President Donald Trump on Saturday signed orders to impose tariffs on Canada, Mexico and China effective from today. Trump decided to slap 25 percent tariffs on goods from Mexico and Canada as well as 10 percent on those coming from China, but would only impose a 10 percent tariff on Canadian energy products, including oil and electricity. Canada and Mexico on Sunday quickly responded with retaliatory tariffs against the US, while countermeasures from China are expected soon. Nevertheless, Trump announced yesterday to delay tariffs on Mexico and Canada for a month and said he would hold further talks with
Taiwan’s undersea cables connecting it to the world were allegedly severed several times by a Chinese ship registered under a flag of convenience. As the vessel sailed, it used several different automatic identification systems (AIS) to create fake routes. That type of “shadow fleet” and “gray zone” tactics could create a security crisis in Taiwan and warrants response measures. The concept of a shadow fleet originates from the research of Elisabeth Braw, senior fellow at the Washington-based Atlantic Council. The phenomenon was initiated by authoritarian countries such as Iran, North Korea and Russia, which have been hit by international economic
RSS