Can You Trust China’s GDP Numbers?

Data manipulator

Today, China did not surprise the world with its GDP number and Asian markets rejoiced for a 6.8% reading. Today was a pretty good rebound for Commonwealth Bank of Australia [ASX:CBA] stock. I haven’t been running CBA in my trading portfolio for a while now. It is because the bank’s stock went into a down trend in 2015.

Since the third quarter of 2015, CBA has actually done quite well. It has recovered some lost-grounds from 2015 and it has weathered the current market ‘storm’ reasonably well.

But let’s talk about China, since that was the ‘bomb’ for the day. China’s GDP was released at 1pm Sydney time today. The market was very nervous before its release and was bracing for a worse-than-expected number from the second largest economy.

My data release calendar beeped at 1pm and there it was, right on consensus — 6.8%.

I already wrote about China’s GDP number in my weekly update to New Frontier Investors. Here is what I said:

‘A clear bottom in China will at some point surprise the market. It will act as a key to unlock the coming rebound. We will get the GDP number this week. It will likely be under 7% but close, as Premier LI already indicated on Saturday.

‘I am pretty sure he has already seen the actual GDP number before release. And don’t forget, this will be the fourth quarter number for 2015, which means it will be a delayed number. Its usefulness is limited, but its ability to spook the markets will be huge.’

The take-away from my writing is that Li had already seen the number before its release. I was speculating on this point when I wrote it, but from my knowledge of how China works, that should have been the case.

The statistical agency is not going to contradict the Premier in a communist country. Or in this case, it was Li who already found out about the number and gave some forward-guidance on it prior to the number’s actual release.

Now, China’s numbers are widely-known for their inaccuracy and are suspect of being ‘manipulated’ by the statistical agency/government. For example, many analysts suspect that China’s statistical agency makes the numbers up to make things look good.

Is that possible? Is China a data manipulator?

Let’s just say I wouldn’t be surprised if they are. However, there are many degrees of manipulation and many forms of manipulation. I wouldn’t call China’s situation ‘manipulation’ in an overly-negative sense. I would call it a ‘moderate margin of error’.

But remember this, China’s statistical agency can’t change the data too much. It may smooth it somewhat, but the trend is what investors need to pay attention to. And the trend is saying China is slowing.

But we already know that, don’t we? China will continue to slow for years to come, because it is maturing as an economy.

Ken Wangdong

Emerging Market Analyst, New Frontier Investor

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