The 5 Chinese Economic Indicators That Experts Trust

By admin on January 18, 2013

When China announced better than expected trade data last week, a chorus of critics popped up again to question the validity of the numbers.

Some used a 1930′s mathematical tool called Benford’s Law to argue that the data was unreliable.

But China hit back defending its numbers.

In fact, every time China unleashes its economic indicators we see this debate pop up.

And with the country unleashing its first massive data dump for the year tonight, we thought it would be a good time to rerun our feature on the most reliable Chinese economic indicators according to the experts.

Electricity consumption data is unlikely to be inflated because it would lead Beijing to impose restrictions on energy use

Moody’s’ Alaistair Chan, Bank of America’s Ting Lu, and future Chinese premiere Li Keqiang have pointed out that electricity consumption tends to be one of the more reliable economic indicators in China.

Lu has previously said there is little reason for electricity consumption to be manipulated. “China’s local officials might be incentivized to over-report some macro indicators such as GDP and FAI, but they have little incentive to over-report use of energy including electricity as Beijing imposes increasingly restrictive regulations on energy use per unit of GDP on local governments.”

The official and HSBC PMI numbers generally match the true growth numbers

Chinese HSBC purchasing manager’s index (PMI) and official PMI are said to be fairly reliable. The relative weakness in the HSBC PMI number has been attributed to the fact that it is more exposed to small-and-medium enterprises.

Moody’s analyst Alaistair Chan writes that they are “based on surveys and generally match other indicators of activity, such as industrial production and GDP” and therefore are more reliable.

Rail freight traffic may be prone to error, but not manipulation

Li Keqiang, China’s future premier, who was revealed to have said that the GDP number is “man-made” in a Wikileaks report has said that rail cargo data which is less closely watched is a far more reliable indicator.

“Rail freight is useful because it is a measure of actual goods moving across the country, which is a proxy for industrial activity,” according to Chan. “It is not weighted (like industrial production), which can introduce error because it measures gross weight of freight, with no distinction between say coal and cars. But it is fairly accurate and not prone to manipulation.”

See the rest of the story at Business Insider

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