China's economic enigma

[FRED]

http://www.itulip.com/images/enigma.jpgChina's economic enigma

How is China's economy doing? The Chinese government says the economy is doing well, auto sales appear to be up, but the data are suspicious. China auto sales hit record 1.11 million in March (http://www.google.com/hostednews/ap/article/ALeqM5jnLvATfENcYIMMfdPa2_raXimdNQD97ETP3O0)
By ELAINE KURTENBACH – 15 hours ago

SHANGHAI (AP) — China's auto sales hit a monthly record of 1.11 million vehicles in March, exceeding U.S. sales for the third month in a row, as tax cuts and rebates for small car purchases lured buyers back into showrooms, according to industry figures.

The China Association of Automobile Manufacturers said sales rose 5 percent in March from a year earlier, when they totaled 1.06 million, the official Xinhua News Agency reported Thursday.

The data confirmed that sales remained robust in China, the world's second biggest auto market, despite deteriorating conditions in most major markets.

Americans bought 857,735 new vehicles in March, down 37 percent from the 1.36 million sold in the same month a year earlier, according to Autodata Corp. more... (http://itulip.com/forums/How%20is%20China%27s%20economy%20doing?%20Hard%20t o%20say.)
Who are we to challenge the China Association of Automobile Manufacturers? For all we know their data are at least as reliable as the data provided by the National Association of Realtor's on the housing market here in the US. But the Chinese government data are strictly dubious.

February 2009 created the chart below from data on Output and Growth Rate of Major Industrial Products from data on the National Bureau of Statistics of China web site.
http://www.itulip.com/images/chinaoutput2008vs2007.gif

The data show dramatic declines in 26 industrial products between Oct. and Dec. 2008, the quarter the global financial system imploded. The data on power shows output off 12.4%, internal combustion engines off 50.4%, and semiconductor circuits off 19.5%. The output totals, the line items, and the total GDP reported just don't add up. But it gets worse.
http://www.itulip.com/images/nbsc1.jpg

December 2008 year over year data

We went back today to the site to compare the 2008 data to the latest reports. Alas, the data on the major industrial items that indicate rapidly declining output have either been re-categorized or removed entirely, leaving--surprise!--only minor items like fax machines showing significant negative growth.

Automobiles, not even a category in February's report of December 2008 data, were up more than 22% year over year in February 2009, according to the most recent March 2009 report. Internal combustion engines, presumably a critical component of autos, were off more than 50% in December 2008 but are not listed in the latest report. Instead, a more general category of "Engines" is listed, off a more modest 7.8%.

http://www.itulip.com/images/nbsc3.jpg

February 2009 year over year data

Power output, a close proxy for economic growth, is not reported at all, but power capacity is. Wait, are these output data apples or capacity data oranges?

Oh, never mind. Details, details. The Chinese government reports strong GDP growth of 9% for Q1 2009. Why should we doubt them just because the GDP the other major Asian export economy, Japan, was off 12% Q4 2008?

And you thought US government economic statistics were unreliable.

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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[Jay]

Did Larry Summers help them with that report?

[doom&gloom]

Did Larry Summers help them with that report?


tee hee hee...

[cobben]

What is great about any truly communist system - the 5 year plans are always fullfilled with margin and no chinks in the facade are visible.

Might the Chinese have strayed from the straight & narrow temporarily last fall? Perhaps someone in guvm'nt statistics was temporarily deluded into thinking he was working in a capitalist system?

[ax]

"Exports, a key driver of the mainland's economy, deteriorated for a fifth straight month, the data indicated. China's trade surplus for February had amounted to $4.8 billion."

http://www.marketwatch.com/news/story/Chinas-March-trade-surplus-widens/story.aspx?guid=%7BCE1316BE%2D8681%2D40A6%2DBB2F%2 DBEE87048720F%7D&dist=hplatest

[SJ]

Precious Fred, just precious.

[thart]

The Chinese government says the economy is doing well, auto sales appear to be up, but the data are suspicious.

I try not to forget that this is the same ruling party that gave China "Stop on Green, Go on Red" during the Cultural Revolution (red of course being the party color). I grant that our politicians are out-racing the Chinese to the bottom, but Communist party is capable of profound stupidity. We haven't heard the last from the "Stop on Green, Go on Red" crew.

[metalman]

china's stats bureau can improve china's gdp numbers if they add a line item for the one product they produce in ever greater quantities... lies.

[touchring]

How about statistics from individual foreign brand car makers? Also lies? :D

2 minutes of Googling....

UPDATE: Nissan March China Car Sales Up 36% On Year - Exec
http://online.wsj.com/article/BT-CO-20090410-702787.html

Beijing Hyundai sales surges 70% in March
http://www.chinaknowledge.com/Newswires/News_Detail.aspx?type=1&NewsID=22510

GM's March China Sales Up 24.6% On Year At 137,004 Vehicles
http://money.cnn.com/news/newsfeeds/articles/djf500/200904080419DOWJONESDJONLINE000432_FORTUNE5.htm

Mercedes-Benz China sales surge 30% in Q1
http://www.chinadaily.com.cn/bizchina/2009-04/09/content_7663439.htm

BMW says Q1 China car sales rise 13.8 pct yr/yr
http://www.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUSSHA34023020090410

[metalman]

How about statistics from individual foreign brand car makers? Also lies? :D

2 minutes of Googling....

UPDATE: Nissan March China Car Sales Up 36% On Year - Exec
http://online.wsj.com/article/BT-CO-20090410-702787.html

Beijing Hyundai sales surges 70% in March
http://www.chinaknowledge.com/Newswires/News_Detail.aspx?type=1&NewsID=22510

GM's March China Sales Up 24.6% On Year At 137,004 Vehicles
http://money.cnn.com/news/newsfeeds/articles/djf500/200904080419DOWJONESDJONLINE000432_FORTUNE5.htm

Mercedes-Benz China sales surge 30% in Q1
http://www.chinadaily.com.cn/bizchina/2009-04/09/content_7663439.htm

BMW says Q1 China car sales rise 13.8 pct yr/yr
http://www.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUSSHA34023020090410

enigma indeed. who's buying all of those cars? has china been able to turn on a dime from an export growth to a domestic demand based economy?

[touchring]

enigma indeed. who's buying all of those cars? has china been able to turn on a dime from an export growth to a domestic demand based economy?


China has never been a credit based economy. So what if business is bad, and they are closing down their factories and laying off peasants or using the excuse not to pay wages.

You bet the businessmen (even the really small ones) got plenty of cash, especially when they do not need to pay wages.

As for the jobless peasants, they don't buy cars anyway, so even if 50 million peasants gets unemployed, it won't affect car sales.

[metalman]

China has never been a credit based economy. So what if business is bad, and they are closing down their factories and laying off peasants or using the excuse not to pay wages.

You bet the businessmen (even the really small ones) got plenty of cash, especially when they do not need to pay wages.

As for the jobless peasants, they don't buy cars anyway, so even if 50 million peasants gets unemployed, it won't affect car sales.

as good a theory as any.

[touchring]

as good a theory as any.


There are many ways to boost domestic consumption when you have room for consumer credit growth. If the West can do it, so can China.

The Singapore government is doing the same thing even though the effect may not amount to much due to extremely small domestic market. Previously, anyone earning less than $20,000 a year couldn't get a credit card or unsecured personal loan, now they relaxed the rule.... :D

[flyer38]

According to today's NY Times article there's a $730 subsidy introduced last month for car buyers in rural areas, and the sales tax on those cars went from 10% to 5%.

http://www.nytimes.com/2009/04/11/business/energy-environment/11electric.html

The article seems to indicate that China favors consumer-based subsidies instead of directly to the industry.

Mr. Zhang said that with a greater emphasis on incentives for electric car buyers, “we will cut back on the discretionary power of government agencies — otherwise, the companies will just fight for subsidies.”

How did China figure that out, and we didn't? Bastards.

[metalman]

According to today's NY Times article there's a $730 subsidy introduced last month for car buyers in rural areas, and the sales tax on those cars went from 10% to 5%.

http://www.nytimes.com/2009/04/11/business/energy-environment/11electric.html

The article seems to indicate that China favors consumer-based subsidies instead of directly to the industry.

Mr. Zhang said that with a greater emphasis on incentives for electric car buyers, “we will cut back on the discretionary power of government agencies — otherwise, the companies will just fight for subsidies.”

How did China figure that out, and we didn't? Bastards.

our commie gov't has a lot to learn from theirs.

[allenjs]

This isn't a bad theory, considering that automobiles are a luxury good in China. There are about 700 million people in China who live essentially at subsistence level, and would never dream of owning an automobile. People at upper middle class level, however, are willing to pay one or two years' salary for an automobile -- far higher than westerners are willing to pay. Doctoroff's book, "Billions", has interesting data about this love affair of Chinese with the automobile. The reduction in tax alone would amount to 1-2 months of wages for the average auto buyer.

Beyond the middle class, the wealth disparity in China is significant. On a base of 1.5 billion people, a 2% slice of mega-rich people is still a lot of people. And the average Chinese at middle class or above is feeling pretty confident about the future, and feeling wealthy. Every day, their newspapers run stories about how the American economy was a sham, a paper tiger, etc. Stories about how the Chinese government has agreed to save America's ass, and so on. (Much like the stories about the American economy that have been running here for years). And they know that their government sits on a few trillion dollars of cash, much like the mega-rich people in China sit on huge piles of cash. The average Chinese person feels that China's future in the world has never looked so bright as it looks right now -- for the first time in centuries, there appear (to them) to be no obstacles to them becoming the world's most powerful economy, and the primary military agitator seems (to them) to be crumbling. Their only real economic, political, and military rival is self-destructing at breathtaking pace. Not that this is an accurate assessment, but it *is* how the narrative plays out for the man on the street.

I'm not saying that the high confidence level is justified, nor that I agree with the one-sided view represented in the Chinese media. There are significant risks, and already some negative signs of unrest among the masses of newly unemployed at the fringes of subsistence. But few people who can afford cars in China would know or care about this. Fewer that 1 out of 50 people in China I've talked to about the crisis seem to have any awareness of what is going on out in the villages. One factory owner I know has laid off (fired) a bunch of people, but none of those people were anywhere close to being able to buy an automobile, and they return to their villages and are not seen by the people who do buy cars. The point is that the average Chinese person who lives above subsistence level *is* relatively confident compared to citizens in any other country, and that is to be expected given the news that they hear.

Next, I think Eric is right to be suspicious. The central bureau of economic statistics was caught red-handed a few years ago, when they were fudging the numbers *downward*, to make a 13% growth rate look like 9%. The central party apparently decided that it would be wise to downplay their growth rate to avoid making foreigners feel threatened, and to escape the pressure from foreigners to unpin the RMB from dollar. They published the lower number, and then some Dutch economist added up all of the power consumption data from the provinces (which is the source of data for the central number anyway) and found it didn't match. All of the provincial leaders swore by their numbers, and nobody could explain why the central party made such a large mistake in simple arithmetic.

The point being that there is a pattern of "smoothing out the data", and there is no reason to expect that to change -- especially with regards to the top line economic growth number. Even if the foreign auto companies' numbers match the central bureau's statistics, I wouldn't assume that there is no "smoothing" going on. Clearly, some useful points of extrapolation have been removed from the reports, making it easier to "smooth" data in the future.

Finally, while I may relocate to China one day and would thus like to see them achieve better transparency, I am more concerned about fixing America right now. I'm more likely to stay here.

Taleb made the comment that "If a guy drives a bus blindfolded, and crashes it, killing everyone on board, he should never be allowed to drive a bus again." He was complaining about people like Summers and Geithner being appointed to Treasury, but I think his analogy didn't go far enough. In reality, it's as if the blindfolded bus driver, standing amidst the carnage of slaughtered passengers, declared boldly, "Driving blindfolded is HARD! I need a million percent raise, or else who knows how many more people will die!" ... and we gave him the million percent raise and put our kids on the bus as he drove away blindfolded. Not exactly the best time to be bragging about how awesome our country is.

[babbittd]

allenjs, thank you for sharing that report.

[idianov]

Here is the latest from Brad Setser:



Big changes, but not much adjustment: China’s March trade data (http://blogs.cfr.org/setser/2009/04/10/big-changes-but-not-much-adjustment-chinas-march-trade-data/)

The Wall Street Journal puts a more positive gloss on China’s March trade data than I would. To me the overarching story is simple: the data paint a story of deep distress in both the Chinese and global economy.

China’s exports were growing 20% y/y (23% actually) in the third quarter of 2008. They were down nearly 20% (19.7%) in the first quarter of 2009.

Imports though fell by more, in part because of the fall in oil prices. Imports fell close to 30% y/y in the first quarter. That isn’t just a function of falling commodity prices and fewer imported components either; US exports to China — which presumably include a lot of capital goods — are way down y/y.

....

[skyson]

This isn't a bad theory, considering that automobiles are a luxury good in China. There are about 700 million people in China who live essentially at subsistence level, and would never dream of owning an automobile. People at upper middle class level, however, are willing to pay one or two years' salary for an automobile -- far higher than westerners are willing to pay. Doctoroff's book, "Billions", has interesting data about this love affair of Chinese with the automobile. The reduction in tax alone would amount to 1-2 months of wages for the average auto buyer.

Allen:

As a Chinese now living in Canada, I must say that your observation of China in general is very objective and accurate. I pay very close attention to affairs in China, and mostly agree with your assessment.

In another thread you were discussing the Tibet issue(China May Press G-20 to Guard Its U.S. Assets (http://www.itulip.com/forums/showthread.php?t=8962)) , and I am amazed about your unbiased view points as well. I rarely encounter any westerners who has such deep and accurate understanding on this. While most "foreigners" (eg. anyone outside the Great Wall of China, of course:D) accused the Chinese government's propaganda, they fail to realize that themselves are so brainwashed by the western media on affairs of the non-western world.

Thanks for the posts. Your input will benefit many readers on this forum.

[babbittd]

China's central bank said yesterday that its foreign exchange reserves rose 16 percent from a year earlier to US$1.95 trillion by the end of March, but growth slowed in the first quarter as exports and foreign investment slumped.

China's reserves, already the world's largest, increased by US$7.7 billion in the first quarter - US$146.2 billion less than during the same period last year, the People's Bank of China said in a notice on its Web site.

The rise compared to a fourth quarter increase of almost US$45 billion, according to China's official Xinhua News Agency.

[..]

In March, the reserves increased by US$41.7 billion - US$6.7 billion more than the same period last year.

http://www.etaiwannews.com/etn/news_content.php?id=917887&lang=eng_news

[allenjs]

Sounds about right.

Also, check out this post today in Marginal Revolution:

http://www.marginalrevolution.com/marginalrevolution/2009/04/times-have-changed.html


Remember the good old days, when economists used to write papers about how firms -- most of all public utilities -- would under-report profits, to minimize regulation and control? These days we have firms over-reporting profits to minimize regulation and control.

Which links to Krugman's bit from yesterday:
http://krugman.blogs.nytimes.com/2009/04/11/green-shoots-and-tea-leaves/

[touchring]

The point being that there is a pattern of "smoothing out the data", and there is no reason to expect that to change -- especially with regards to the top line economic growth number. Even if the foreign auto companies' numbers match the central bureau's statistics, I wouldn't assume that there is no "smoothing" going on. Clearly, some useful points of extrapolation have been removed from the reports, making it easier to "smooth" data in the future.

Finally, while I may relocate to China one day and would thus like to see them achieve better transparency, I am more concerned about fixing America right now. I'm more likely to stay here.


What's new? Everyone does smoothing, the difference is in the extent. For example, China reduces growth from 13% to 8%, whereas American banks claim billions in profit when the reality should be trillions in losses, from solvent to bankrupt.
;)

[Bruno T]

Touche'. Excellent information. Maybe this means they are switching from buying US treasuries and saving to spending some of their savings on tangible goods (finally) as Peter Schiff said they would. Even with a big dropoff in exports maybe they have some accumulated savings they want to spend. Whether they can sustain it in the months ahead is another matter.

How about statistics from individual foreign brand car makers? Also lies? :D

2 minutes of Googling....

UPDATE: Nissan March China Car Sales Up 36% On Year - Exec
http://online.wsj.com/article/BT-CO-20090410-702787.html

Beijing Hyundai sales surges 70% in March
http://www.chinaknowledge.com/Newswires/News_Detail.aspx?type=1&NewsID=22510

GM's March China Sales Up 24.6% On Year At 137,004 Vehicles
http://money.cnn.com/news/newsfeeds/articles/djf500/200904080419DOWJONESDJONLINE000432_FORTUNE5.htm

Mercedes-Benz China sales surge 30% in Q1
http://www.chinadaily.com.cn/bizchina/2009-04/09/content_7663439.htm

BMW says Q1 China car sales rise 13.8 pct yr/yr
http://www.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUSSHA34023020090410

[nicmakaveli]

The people here are stilling buying cars like crazy, and it drives me nuts, shanghai, I tell you, month after month you can feel the increase on cars, streets that weren't heavily trafficked, are now.
You can walk faster from A to B than you can in a car, but people are still buying.
They halved the sales tax that used to be 8.8% to 4% for cars with or with less than 1.6L Engines.

You know, they hold a lottery here, for the number plates, there are huge lines in front of the office, and even if you get up at 6 get there at 7 there already is a few hundred people in front of you, EVERYDAY!

Car prices have fallen too. Quite a lot. And the used car market is almost non-existent.

[touchring]

The people here are stilling buying cars like crazy, and it drives me nuts, shanghai, I tell you, month after month you can feel the increase on cars, streets that weren't heavily trafficked, are now.
You can walk faster from A to B than you can in a car, but people are still buying.
They halved the sales tax that used to be 8.8% to 4% for cars with or with less than 1.6L Engines.

You know, they hold a lottery here, for the number plates, there are huge lines in front of the office, and even if you get up at 6 get there at 7 there already is a few hundred people in front of you, EVERYDAY!

Car prices have fallen too. Quite a lot. And the used car market is almost non-existent.


This would mean real estate near the mass rapid train station will appreciate significantly in the future.

[touchring]

Touche'. Excellent information. Maybe this means they are switching from buying US treasuries and saving to spending some of their savings on tangible goods (finally) as Peter Schiff said they would. Even with a big dropoff in exports maybe they have some accumulated savings they want to spend. Whether they can sustain it in the months ahead is another matter.


I think they may have a good chance of pulling it off. Money will start flowing from the West to China. Everyone wants to be in the place where the action is and not just paper game - the financial fraud that the US government is now creating with AIG will ultimately end in disaster.

[cobben]

Armstrong's piece is relevant in that he is essentially saying that in as much as both entrepreneurial conditions and the rule of law(!) are in better shaped in China than in the US, as long as nothing changes China will come out the big winner as world capital flees to China from the corrupt stagnant "old world".

Damn the statistics, full speed ahead . . .

The New Face of China
March 15, 2009
http://www.scribd.com/doc/13947563/The-New-Face-of-China309

[babbittd]

Shanghai to Subsidize More Environmentally Friendly Cars (http://www.china-briefing.com/news/2009/06/01/shanghai-to-give-subsidies-for-more-environmentally-friendly-cars.html#more-3397)

SHANGHAI, June 1 – The local government is encouraging more people to replace their cars and trucks with more environment-friendly models by giving average subsidies of RMB5,000 starting today until April 30, 2010.

The measure is part of the city’s efforts to ease pollution and help the local economy for the coming Shanghai 2010 World Expo. By next year, 50,000 old and polluting vehicles should be off the streets because of it. This will decrease vehicle emissions by 8 percentage points and increasing spending on cars by RMB7 billion.

[babbittd]

General Motors...</KWD>saw its sales in China jump 75% in May compared with the year before.

GM says China now accounts for nearly 25% of its global sales.

[..]

China is on track to sell 11 million vehicles this year, according to the China Passenger Car Association. That would be up 17% from 2008, and a stunning 20 times the number of vehicles sold in China just a decade ago. Zhang says this year China likely will overtake the USA, where expected sales are around 10 million units, and become the world's biggest car market for the first time.

[..]

Dunne, the J.D. Power analyst, says more than 85% of the adult population still does not own a car. It's still too expensive, but cities such as Shanghai are preparing for an onslaught, building new ring roads and avenues to handle the traffic.

http://www.usatoday.com/money/autos/2009-06-14-chinacars_N.htm

[FRED]

The people here are stilling buying cars like crazy, and it drives me nuts, shanghai, I tell you, month after month you can feel the increase on cars, streets that weren't heavily trafficked, are now.
You can walk faster from A to B than you can in a car, but people are still buying.
They halved the sales tax that used to be 8.8% to 4% for cars with or with less than 1.6L Engines.

You know, they hold a lottery here, for the number plates, there are huge lines in front of the office, and even if you get up at 6 get there at 7 there already is a few hundred people in front of you, EVERYDAY!

Car prices have fallen too. Quite a lot. And the used car market is almost non-existent.

Thank you for the Chinese Car Bubble report. Looks like a spin-off of the Anglo Saxon Credit Bubble with Chinese Characteristics.

A bubble without government is like a car without gasoline: it's not going anywhere!

[babbittd]

A glut of cash is producing bubbles in the Chinese economy. The racing credit growth and the low costs for wholesale financing are leading to financing abuses and production surpluses in the real economy. Even lower than usual interest rates have residents transferring their asset preference from bank deposits to the capital market, promoting frothy asset prices.

Increasing real estate prices comprise the main bubble, but without high land prices, local governments cannot come up with the cash needed to fund the economic stimulus package. So, the central government allows the bubbles to inflate.

On July 16, the National Bureau of Statistics released second quarter and first half figures for the year, according to which real GDP in the second quarter grew 7.9%, 1.8 percentage points higher than in the first quarter, and in the first half by 7.1%, year on year.

Many analysts see China’s economy rebounding strongly, but the figures from the real economy do not support this judgment. In the first five months of this year, the profit of industrial enterprises above designated scale totaled only 850.2 billion yuan, down 22.9%, year on year. Of that total, state-owned and state-controlled enterprise profits totaled only 246.7 billion yuan, off 41.5%. During the same period, value-added of nationwide industrial enterprises above designated scale grew only 6.3% year on year, while the growth in the same period last year was 16.3%.

Rapid GDP growth is still being boosted by fixed asset investment promoted by the loose credit policy. In the first half of 2009, fixed asset investment grew 33.5%, year on year, in urban areas by 33.6%. In railway and transportation, road transportation, and water facilities, environment, and public facilities management, fixed asset investment grew 126.5%, 54.7%, and 54.5%, respectively.

http://www.chinastakes.com/2009/7/credit-glut-props-up-growth-sowing-seeds-of-trouble-down-the-road.html

[touchring]

Thank you for the Chinese Car Bubble report. Looks like a spin-off of the Anglo Saxon Credit Bubble with Chinese Characteristics.

A bubble without government is like a car without gasoline: it's not going anywhere!


ya, but how long did the anglo-saxon auto bubble lasted? :D