Troubling contradictions in China's economic data

Large number of export businesses closed along China's coast;
 resulting in 23 million jobless migrant workers. (Getty Images)

Economic data recently released by China showed signs of an economy that may be recovering. However, the latest macroeconomic data released by China's National Bureau of Statistics and third parties reflect three great contradictions which are confusing, according to market analysts.

1.    Industrial added value up; electricity consumption down.

Electricity consumption has always been a leading economic indicator. In recent years, industrial added value grew basically in step with electricity consumption. From 1999 to 2007, their deviation margin was only 1 per cent. Since the beginning of 2009, however, industrial added value growth and electricity consumption seem to be quite contrary. Electricity consumption fell off sharply for months from the same period last year, while the industrial added value kept going up. For the month of February 2009, the industrial added value grew by as much as 11 per cent; in March this indicator increased more slowly, but still remained up by 8.3 per cent compared to March last year.

China's explanation for this apparent contradiction is that economic growth depended more on lower energy consumption industries such as light industry and various service industries. Accordingly, economic growth performance remained relatively strong compared with the low growth rate of electricity consumption.

But, market analysts refuse to accept this reasoning. In an interview with National Business Daily, a Chinese media (NBD), Lu Zhengwei, Chief Economist for Industrial Bank, said that economic growth still depends on heavy industry. According to his estimation, industrial contribution to China's GDP growth was approximately 50 per cent, while heavy industry contributed as much as 70 per cent to industrial growth. The opinion that economic growth rate was improved only by light industry does not make sense.

2.    Import and export remain sluggish; industry and consumption keep growing

Both the import and price of raw materials went down during the first quarter of this year. The import and price of crude oil and steel with a high external dependence both slipped to a certain degree. The import of crude oil was down 10.2 per cent; while its price was down 58.6 per cent from the same period last year. In the meantime, industry added value increased by 5.1 per cent; while in March it was up 8.3 per cent. It is believed, not considering the price factor, a data departure phenomenon between the raw material import and industrial added value occurred.

Additionally, China's Customs data showed that China's cumulative exports during the first quarter were down by 19.7 per cent from the same period last year; while data from the National Bureau of Statistics showed total volume of retail sales was up 15 per cent from the same period last year. Since the second half of last year, many foreign trade businesses along the coast closed down, which increased the jobless rate. The decline in income affects, to a large extent, people's consumption ability. So, where did the 15 per cent growth rate of total volume of retail sales come from?

3.    Different Purchasing Managers' Index (PMI) predictions

PMIs released by Credit Lyonnais Securities (CLS) and China Federation of Logistics & Purchasing (CFLP) always cause general concerns in the market. A PMI reading of 50 or higher indicates that the manufacturing industry is expanding, while below 50 indicates that it is generally declining.

Before March this year, both indexes were below 50 and had a similar tendency. In March, however, both predictions showed an "essential difference." China's official PMI increased considerably to 52.4, while CLS's prediction maintained at 44.8. Since April, both indexes showed a similar tendency again; though the difference was considerably narrowed. CLS's PMI rose to 50.1, entering expansion rate; while China's official PMI kept increasing to 53.5.

But, Lu Zhengwei cast doubt over CLS's prediction that showed a change from decline to expansion within one month. He said, "the change of the survey object group deserves our attention. Maybe some enterprises they surveyed in March went bankrupt in April. After natural selection in the market, the enterprises left as the survey objects certainly will make the average value better." However, he also stated, "the puzzle can be clarified only if relative agencies could publish their detailed survey rules."

Liu Yuanchun, Vice President of the School of Economics at Renmin University of China (SERUC) said, "Similar to the industrial added value, China's official PMI reflects more operation status of large and medium-sized enterprises; especially those capable of contracting governmental large-scale projects. Mid-sized and small enterprises, especially small ones that have been hardest hit by the impact of economic downturn, may not be included in their statistics."