Unless you're living in a cave in some remote backwater, you've heard that China's economic miracle does not look quite as miraculous as it used to. Coal consumption is one reliable indicator of what's really going on there, and inventories are climbing rapidly as unused coal piles up in ports like Tianjin and Qinhuangdao. Such developments may delight climate activists, but Chinese government officials can't be happy about the situation. So there seemed to be little that was controversial in New York Times reporter Keith Bradsher's recent story Chinese Data Mask Depth of Slowdown, Executives Say.
HONG KONG — As the Chinese economy continues to sputter, prominent corporate executives in China and Western economists say there is evidence that local and provincial officials are falsifying economic statistics to disguise the true depth of the troubles.
Record-setting mountains of excess coal have accumulated at the country’s biggest storage areas because power plants are burning less coal in the face of tumbling electricity demand. But local and provincial government officials have forced plant managers not to report to Beijing the full extent of the slowdown, power sector executives said.
Electricity production and consumption have been considered a telltale sign of a wide variety of economic activity. They are widely viewed by foreign investors and even some Chinese officials as the gold standard for measuring what is really happening in the country’s economy, because the gathering and reporting of data in China is not considered as reliable as it is in many countries.
Indeed, officials in some cities and provinces are also overstating economic output, corporate revenue, corporate profits and tax receipts, the corporate executives and economists said. The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist.
As straightforward as all this seems, we are not surprised to learn that Bradsher's commonplace observations about government data reporting have been disputed (Business Insider, June 25, 2012).
Ting Lu, China economist for Bank of America Merrill Lynch [pictured left], is out with a note in which he says while China's slowdown has been worse than anticipated, and while "we" have also complained about data quality, "we have some very different views from what the NYT article claims", which "stirred markets today"...
He ... questions the logic since, "China's local officials might be incentivized to over-report some macro indicators such as GDP and FAI, but they have little incentive to over-report use of energy including electricity as Beijing imposes increasingly restrictive regulations on energy use per unit of GDP on local governments." Further, Ting writes that leadership transitions in most regions are done and GDP growth is not as relevant for provincial governors to get a spot in Beijing...
[My note: if energy consumption is closely tied to GDP, the solution is simple: you simply inflate both.]
Ting also says the room for manipulation isn't as big as the New York Times piece suggests when it cites a "top corporate executive" who says that electricity consumption in Shandong and Jiangsu fell over 10 percent YoY in May.
Ting says exact May data for Shandong isn't available just yet but according to the Bureau of Energy is in positive territory.
In Jiangsu its was up 4.2 percent. "Is it possible for Jiangsu’s provincial officials to over-report power consumption by 14.2% in May?" asks Ting. "As one of the most developed provinces in China with relatively good governance, officials there simply do not have the guts for such a massive manipulation. Actually, Southern Jiangsu did report negative yoy growth of industrial power use at -1.0% in May, but Northern Jiangsu posted a high growth at 14.3% (Central Jiangsu’s growth at 3.2%)."
Finally, Ting seems to question Bradsher's integrity as a journalist...
[My note: many details of Mr. Lu's critique are available in this Business Insider story.]
Could the unimpeachable Mr. Lu possibly be correct regarding his confidence in the integrity of Chinese provincial officials? Could Mr. Lu be correct that Mr. Bradsher of the New York Times is little more than a dishonest hack? Or does Mr. Lu have his head crammed so far up his ass that he has not seen the sun shine since 1987?
Sometimes we humans get confused. It is good to take stock, to get our bearings, to make sure we know where we stand. Mr. Lu's remarks attacking Mr. Bradsher caused me to doubt, if only for a moment, that we are still living on Earth. Isn't this the place—
- where governments, even the most forthright, honest governments like that of the United States, routinely lie about how the governed are doing to make themselves look good?
- where power corrupts, and absolute power corrupts absolutely?
- where large, complex societies are always governed by rigid hierarchies?
- where telling the powerful what they want to hear is a way a life?
- where brown-nosing (toadying, back-scratching, sucking up to, etc.) is a fine art?
- where it is imperative to kiss the ass of the powerful if you want to keep their job?
- where going against the grain is punishable by a mandatory 100,000 dollar fine and 5 years in jail, or death, whichever you think is worse?
And last but not least—
- where it always far more important to look good than it is to feel good?
Thus we see that what Mr. Bradsher wrote make a lot of sense, whereas Mr. Lu is living in the dark as just described. Thus we get sensible but predictable quotes like these in Mr Bradsher's story—
Some still express confidence in the official statistics. Mark Mobius, the executive chairman of Templeton Emerging Markets Group, cited the reported electricity figures when he expressed skepticism that the Chinese economy had real difficulties. “I don’t think the economic activity is that bad — just look at the electricity production,” he said.
“The government officials don’t want to see the negative,” so they tell power managers to report usage declines as zero change, said a chief executive in the power sector.
Manipulation of official statistics would also provide a clue why some wholesalers of consumer goods and construction materials say sales are now as dismal as in early 2009.
Officials at all levels of government are under pressure to report good economic results to Beijing as they wait for promotions, demotions and transfers to cascade down from Beijing.
Economies double in size in 10 years at a growth rate of 7%. (This is Al Bartlett's famous exponential function.) On paper, if not on the ground, if China's official growth is 7% per year for 20 years, the Chinese economy will be roughly 1 and ½ times the size of that of the United States. On paper.
It is reassuring (albeit depressing) to find out yet again that, yes, we are still living on the Earth, a place where some things make sense and some things don't. Now if we could just get Mr. Lu and millions of other flunkies, shills, lackies, bootlickers and idiots to see the plain truth of this, we might, as a species, start making progress toward turning this ship of doom around and start sailing in the right direction. But don't hold your breath.