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"Too Good To Believe"? Did China 'Revise' Data Or Did Growth Collapse?

We noted earlier in the week the impact of China’s ‘fake data’ and last night’s data deluge sparked more questions than answers from Wall Street and beyond.

https://www.zerohedge.com/sites/default/files/inline-images/20180118_china.png

As a reminder, the data deluge tonight printed as follows…

  • China GDP YoY BEAT: +6.8% vs +6.7% exp (+6.8% prior)
  • China Industrial Production YoY BEAT: +6.2% vs +6.1% exp (+6.1% prior)
  • China Retail Sales YoY MISS: +9.4% vs +10.2%% exp (+10.2% prior) – lowest since Feb 04
  • China Fixed Assets Investment YoY BEAT +7.2% vs +7.1% exp (+7.2% prior)

Visually…the trend is clear…

https://www.zerohedge.com/sites/default/files/inline-images/20180117_chiona.png

As The FT reports, China’s official economic growth rate accelerated for the first time since 2010 last year, according to data released earlier on Thursday, with annual growth of 6.9 per cent comfortably beating the government’s original targets.

An optimistic global outlook is likely to continue to support the country’s economy in 2018, but with some other recent data showing signs of weakness, and concerns around pollution and credit growth increasingly important, analysts don’t expect the pace to be maintained. Here’s what some analysts think about Thursday’s figures:

Craig Botham, emerging markets economist at Schroders, said the strong external backdrop was a key factor in a stronger than expected fourth quarter, with trade and investment both picking up. However, he flagged disappointing recent retail sales figures, and predicted growth will slow this year:

Our own forecasts suggest continued strong growth for the rest of the world in 2018, so the export sector should continue to provide support for the economy even if an acceleration is unlikely. Nonetheless we still expect a deceleration in China this year. Nothing calamitous to be sure; we doubt GDP growth will fall far short of its likely 6.5 per cent target. All the same, we would note that some domestic warning lights are flashing.

Credit growth has seen a marked deceleration from 2016 levels, and feeds through to activity only with a lag. We are beginning to see this already with softer growth in real estate investment and would expect this to continue for another six months or so.

ING’s Iris Pang was slightly more optimistic, however, arguing that China was making good progress in shifting toward a “consumption-based economy” despite the ”small downward surprise” in retail at the end of the year:

With projected GDP growth of 6.7 per cent, 2018 could be another good year for China, supported by consumption of goods and services and infrastructure investments. We expect the manufacturing of high-tech products and parts to grow by more than 50 per cent. That should support the loss of production from overcapacity cuts in non-ferrous metals, shipbuilding and building materials.

Freya Beamish, chief Asia economist at Pantheon Macroeconomics, highlighted the unreliability of the government’s official statistics, suggesting that the headline figure may look a little too high. She said government efforts to tackle pollution probably caused a slowdown in growth in the fourth quarter in particular, and said consumers will “struggle” more this year:

The official data shows very weak growth in Q1, which was out of keeping with the rest of the data. So we think some of the growth attributed to Q4 in the nominal GDP data likely will eventually be revised back to Q3 and have adjusted for this in our calculations.

CPI inflation likely will edge higher in coming months, eroding purchasing power. Wealth effects likely will be negative as well, while the labour market has stabilised last year but weak GDP growth in Q4 likely damaged household income toward the end of the year. A crackdown on micro-loans is in train but the authorities seem more worried about use of consumer loans for speculation in financial markets and real estate than on spending the real economy. But the regulatory tightening could damage growth if households were using micro-loans to pay interest on previous loans.

All of which brings us to the question Matthew Cowie asks (and answers) at Investing In Chinese Stocks blog, did China ‘revise’ its data, or did growth just collapse?

I take the official growth rate for China as given (the cumulative YTD growth rate) and calculate the single month, yoy change for the charts I put out each month. I didn’t notice a discrepancy the past few months, but this month I noticed a discrepancy in fixed asset investment.

I calculated a 2.3 percent drop in private fixed asset investment, but China says the cumulative YTD rate went up from 5.7 percent in November to 6.0 percent in December.

I rechecked the December 2016 release and did a database query: National Data. I see no revision to show my calculation is an error and my raw data is what NBS reports for fixed asset investment and private fixed asset investment covering all the relevant time periods.

When I calculate the cumulative YTD growth rate, using NBS figure, I’m accurate for years until October. The NBS says cumulative YTD private fixed asset investment growth in October, November and December was 5.8, 5.7 and 6.0 percent.

My calculation says cumulative YTD private fixed asset investment growth in those three months was 5.4, 5.2 and 4.5 percent.

I always assume I’ve made an error first, but I didn’t change anything in my calculations. Was there a new seasonal adjustment that kicked off in October? I don’t see any announcement. I also assume I didn’t catch the NBS making a booboo (reporting the wrong headline number) because I would think someone would have caught it before me in the past three months. The real estate investment data matches up, I don’t see any discrepancy there.

Here’s private fixed asset investment, the green line in my cumulative YTD total against the official reported number in yellow.

 

https://www.zerohedge.com/sites/default/files/inline-images/20180118_chinamacro1_0.png

I see a similar divergence in fixed asset investment, but it starts in August.

NBS reports cumulative YTD growth for August through December: 7.8, 7.5, 7.3, 7.2, 7.2 percent.

I calculate: 7.6, 7.4, 6.9, 6.8 and 5.9 percent.

As with PFAI my numbers line up going back years until August.

I also calculate a 2.3 percent decline in fixed asset investment for the month of December.

 

https://www.zerohedge.com/sites/default/files/inline-images/20180118_chinamacro2.png

Here’s the breakdown showing the drop. The December decline is consistent with end of 2015.

 

https://www.zerohedge.com/sites/default/files/inline-images/20180118_chinamacro3.png

The breakdown of private fixed asset investment shows a contraction in services and manufacturing for the month of December. Last time it went negative was mid-2016.

 

https://www.zerohedge.com/sites/default/files/inline-images/20180118_chinamacro4.png

Assuming my calculations are correct, we don’t have to wait to see the impact of the credit slowdown. It is already here.

Reuters reports the official NBS number: China 2017 fixed asset investment grows 7.2 pct, slowest since 1999

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