China’s Fuzzy Math

China just released a host of encouraging new financial data, leading some analysts to conclude that the nation’s economic problems are “bottoming out.”


Don’t take that for granted. China is famous for making up important economic numbers to mask serious problems—or to present a “harmonious” picture for its society and the world.
The latest figures, made public last week, showed sudden and surprising growth in industrial output, retail sales, and investments in fixed assets like new business facilities or machinery, among other encouraging numbers.
It was Li Keqiang, an economist and now China’s new premier, who originally admitted several years ago that China’s GDP numbers “are ‘man-made’ and therefore unreliable,” according to an American diplomatic cable that WikiLeaks made public in 2007.


But there’s more. Many Chinese companies are notorious for listing fake sales, false overseas shipments, and other fictional deals to compensate for corruption and other illicit activities. And the nation’s unemployment figures never seem to change, even while the economy, by every other measure, is dropping. The reason: The government counts only registered urban workers, not migrants from rural areas who work in the cities—at least 230 million people.


And don’t forget that just a few weeks ago China suffered a so-called “cash crunch” because banks found themselves overextended with more loans than they could afford. Has all of that suddenly cleared up, making way for strong new economic indicators? Not likely.


After all, local governments are believed to hold debts that in total range from $2 trillion to $3 trillion. This spring the International Monetary Fund reported that all this local debt appeared to be equal to 50 percent of the nation’s GDP. And the amazing thing is, the central government has little idea how much money those local officials owe. Local governments keep that secret.


Last month, Tsinghua University of Beijing published a survey of 289 localities. Researchers found that only 13 cities, or 4 percent of those surveyed, were willing to disclose their debt levels.
Whatever the actual total, the debts helped precipitate China’s banking cash shortage last spring. The localities certainly have not paid off their massive debts since then.


When Li revealed that the nation essentially made up its GDP figures, he noted that one way to monitor economic activity accurately is to measure electricity consumption. Almost every company requires electricity to produce its products, of course. Well, electricity consumption is reported to have risen 4.9 percent in the last few months, seeming to support the notion that the economy is growing. But some analysts note that the increase could just as easily be because China is suffering an unprecedented heat wave, leading to widespread usage of air conditioners and fans.


I was in Taiwan last Thursday, 100 miles away from mainland China, when the state’s Central Weather Bureau recorded a temperature of 103 degrees—the highest temperature recorded for that day in 117 years.