Skepticism about steel, GDP, and China data

Of the dozens of economic indicators released this week by China’s National Bureau of Statistics, few demonstrated the difficulty of accurately grasping the situation in the world’s second-largest economy as much as the steel statistics.

Just a few months ago, China’s steel output, which had previously been subject to an unofficial cap, was expected to expand for the first time in two years in 2023 as the government seeks to rein in emissions and production.

However, in line with the government’s desire to reduce production, production in December fell 15% year-on-year, the lowest level since 2017. Although this rate of decline meant that total annual production increased slightly, it remained essentially flat at just over 1 billion units. Tons.

“It’s fair to say we don’t believe these numbers,” Colin Hamilton, a London-based analyst at BMO Capital Markets, said of China’s December steel and pig iron data. Even before his release, Mr Hamilton said “data quality issues” were “rearing again in China” and raised the possibility of “strategic under-reporting to achieve official goals”. Ta.

The decline was “not linked to anything else,” he said, adding that production of coke supplied to the steel industry fell only slightly in December compared to the same month last year. “We have seen year-end differences in the past, but this is the first time we have seen such a large difference.”

The steel statistics, released in conjunction with gross domestic product (GDP) growth of 5.2% in 2023, narrowly surpassing the Chinese government’s official target, come as data from the world’s second-largest economy comes amid severe global pressure. This is just one example of surveillance.

Economists have long used alternative indicators, from electricity consumption to energy imports, to supplement their understanding of China’s GDP data and check the overall picture painted by official reports.

Former Premier Li Keqiang, who died last year, admitted to U.S. officials in 2007 that he used alternative methods such as bank loans to assess economic activity, given that some ministry data was unreliable. It is reported that.

During and since the COVID-19 pandemic, the Chinese government has tightened control over the flow of information, deepening uncertainty over official data.

Despite economic expansion that far outpaces global growth expectations of 3% in 2023, Chinese policymakers are still grappling with years of real estate weakness, deflation and consumer caution.

“There are inconsistencies in the dataset that just came out,” said Louis Cuis, head of Asian economics at S&P and a former World Bank economist based in China. “It also worries me when I see statistical authorities not being independent from the government, as is the case in China.”

In July, authorities officially stopped publishing youth unemployment data, which reached 21.3% in June (the highest level since the measure was introduced in 2019), citing methodological concerns. They reintroduced the data this week using a new methodology that puts the youth unemployment rate in December at 14.9%.

Julian Evans-Pritchard, chief China economist at Capital Economics, said: [the government’s] A face value explanation.”

Mr Evans-Pritchard said there was something “strange” about the previous data as it did not appear to follow business cycles and included full-time students, but the government also said the previous series He added that the same should have been made public.

Rebecca Nadin, director of the Overseas Development Institute think tank in London, said what was particularly difficult at the moment was the “difficulty…” . . Being able to talk to people in China and verify or verify some of the economic data. ” He pointed to national security focuses that could impact economic indicators.

Regarding full-year GDP data, several economists highlighted China’s preference for a deflator, a broad price measure that is used to convert nominal growth rates into real values ​​and relies on sophisticated statistical judgment. China’s nominal GDP is below the real growth rate of 5.2%, which means that falling prices have pushed up the overall growth rate.

“[The] “The GDP deflator has to bring down industrial activity, it has to bring down government services, and there are a lot of assumptions coming in, so that could be distortionary,” said Fred Newman, chief Asia economist at HSBC. Ta.

Kuis said the deflator China uses for industrial production appears to track the producer price index, a measure of ex-factory prices that is heavily influenced by global commodity prices. . This approach can be misleading, so when commodity prices change sharply, he adjusts China’s GDP data accordingly.

Various investment banks and research organizations supplement their approaches with alternative measures. TS Lombard, which publishes its own “real GDP index”, said this week that real GDP growth for the full year is “likely to be as low as 3.6%”.

In 2020, Evans-Pritchard noted that China’s major GDP was “eerily stable” compared to other major economies, using its internal China Activity Index.

“Activity… sales, especially in the third quarter, were much weaker than they would like to admit,” he said, referring to Capital Economics’ own findings.

Evans-Pritchard said he believed nominal GDP data was generally accurate, but that the assumptions used in the deflator meant that authorities added “some degree of It can provide “flexibility,” he added. .

But despite the doubts, there is little prospect of a comprehensive alternative to China’s official statistics. “All these [alternatives] “There were flaws,” said HSBC’s Newman, who does not produce an independent measure of GDP.

Despite “a huge segment of people” to the contrary, Quys believes China’s national statistics paint a rough picture of the economic picture he expects.

“It would be difficult to come up with an indicator that would exclude GDP data from the Office for National Statistics,” he said. NBS did not respond to requests for comment.