Published by ASIA TIMES
China’s official GDP figures are widely thought to be inaccurate.
But while most economists believe numbers are being manipulated to display exaggerated growth, a Swedish bank says China actually is experiencing an unanticipated upswing that official numbers don’t show.
Svenska Handelsbanken, one of Sweden’s largest banks, has launched a new alternative index to measure the true activity of the Chinese economy. The indicator is based on official statistics, but also data series that are “less prone to manipulation, smoothing or methodical errors than overall GDP.” These indicators include electricity production (both manufacturing and household) and passenger transportation (cars on toll roads, but also passengers on trains, planes and ferries), as well as car sales and housing investments.
Basically, the Handelsbanken China Macro Index aims to capture China’s “old” and “new” growth drivers, as the official GDP figures tend to place too much weight on the old fixed investment/industrial-production-driven economy and too little on the new household-driven service sector.
The country’s GDP growth has remained relatively stable at around 7 percent in recent years, according to official numbers.
The Swedish bank’s new index indicates that China’s official growth numbers over the last two years have overstated actual growth. However, it also shows that growth has actually picked up in 2016, and is now close to the officially-reported GDP growth figure. The bank therefore concludes that China’s economic growth is no longer overstated.
“The main reason behind the uptick in 2016 is the policy-induced property market rebound,” Bjarke Roed-Frederiksen, a Copenhagen-based senior economist at Handelsbanken, told Asia Times. “The strong rebound affects our index both via property sales and construction investments.”
Car sales growth also jumped in late 2015 following a relaxation of taxes on cars, primarily energy-efficient ones. “Car sales have again in recent months had a boost from car purchases being brought forward to occur ahead of the likely end of the favorable tax regime,” he said.
What’s more, the bank’s alternative index showed higher growth numbers for 2012 and 2013 than the official figures. This was mainly driven by housing market factors, with property sales increasing strongly during these years as the state boosted activity, Roed-Frederiksen said.
The current upswing is expected to be short-lived, however. The bank prognoses overall growth in economic activity to slow again into 2017.
“The Chinese authorities are already seeking to dampen house price increases in the cities where the housing market looks the most frothy,” Roed-Frederiksen said. “The effect will soon kick in and dampen activity. Furthermore, the tax break that boosted car sales in late 2015 is set to expire soon, thereby hurting car sales.”
His forecast for official GDP is growth slowing to 6.3 percent in 2017, from 6.6 percent in 2016.
The Handelsbanken China Macro Index was first produced a couple of years ago but only used internally. It will now be published on a regular basis.
What is in the index?
Our Handelsbanken China Macro Index is based on official statistics, but we use data series that are hopefully less prone to manipulation, smoothing or methodical errors than overall GDP. We try to capture both China’s ‘old’ and ‘new‘ growth drivers, as the official GDP figures might place too much weigh on the old fixed investment/industrial-production driven economy and too little weight on the new household-driven service sector.
is a low profile indicator that captures both the old and new economies, as electricity is consumed by manufacturing firms and increasingly also by households as they become wealthier. Note, though, that electricity consumption for heating and air conditioners can be affected by unusual weather patterns that do not reflect general economic conditions.
Passenger transportation (primarily by car on toll roads, but also transportation by train, plane and ferry)
is a good measure of travel propensities and of the service sector in a broader sense. Car sales represent households’ willingness to purchase, not least durable goods.
The property market
is of course needed in an activity index, as it has a huge direct effect via construction activity and production in related industries. It also impacts indirectly via households’ consumption of goods and services related to upgrading dwelling standards. The direct effect is best caught by housing investments, whereas the indirect effect on households is best captured by house sales.