Tuesday, September 8, 2009

China Cooking the Books: Reliability of China's Numbers

Foreign Policy on September 3 has an article on China's numbers, its books, and accounting practices. It is worrisome read. In the "west" many are counting on China to lead us out of recession. The Chinese economy is huge, and will eventually become even bigger, assuming they find the resources they need. Their shortage of water is quite dangerous. Their shortage of resources is also well-known (look at what they have been buying and investing in Africa).


The article explains a practice through which the official number of unemployed workers becomes much smaller than in reality.

"And they ordered [factory owner] to offer his workers what seemed like a pretty good deal: Accept the layoff and receive the legal severance package, or "resign" and get an even larger upfront payment... I would estimate around 70 percent of workers took the resignation deal. This is happening all over Guangdong," the factory owner said. "I help the Department of Labor, and they'll help me later on down the line."

What happens is that workers who "resign" do not count for unemployment figures.

"with "resignations" included, the number is likely closer to 40 million or 50 million, according to estimates made by Yiping Huang, chief Asia economist for Citigroup. That is the same size as Germany's entire work force. "

Retail statistics:

"The government insists that even though China's all-important export sector has been devastated -- contracting about 25 percent in the past year -- a massive uptick in domestic consumption has kept factories producing and growth churning along. A close examination of retail sales and GDP growth, however, tells a different story. China's domestic retail sales have risen about 15 percent year on year, but that does not really translate into Chinese consumers purchasing 15 percent more televisions and T-shirts. The country tabulates sales when a factory ships units to a retailer, meaning China includes unused or warehoused inventory in its consumption data. There is ample evidence that state-owned enterprises buy goods from one another, simply shifting products back and forth, and that those transactions count as retail sales in national statistics."

GDP and Electricy Usage:

"A look at GDP growth also raises serious questions. China's economy grew at an annualized 6.1 percent rate in the first quarter, and 7.9 percent in the second. Yet electricity usage, a key indicator in industrial growth and a harder metric to manipulate, declined 2.2 percent in the first six months of the year."

How is this possible?

Social unrest:

The artcile also states that for the long term China is counting on its main export markets (United States, Europe, and Japan) -- recovering and starting to consume again. Oops, we have a cycle here.

It's all make-believe econiomincs, until it does no longer works and the stuff burts.

"The hope is that in the meantime, rosy economic figures will placate the masses and stop unrest. But, if the rest of the world does not rebound, China risks the bursting of asset bubbles in property and stocks, declining domestic consumption, and rising unemployment. [...] Once Chinese citizens no longer believe that the economy is doing well, social unrest and more widespread worker riots -- already increasing in scope and severity -- are likely. That's something that China will have a harder time hiding. And then we'll know whether China's statistical manipulation was a smart move or a disastrous mistake."

And whe people go hungry, wars happen.

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