Our stock market both rallies and plunges on PMI reports and other Chinese data points – a key thesis of mine at the start of the year was that the Chinese landing (hard or soft) would mean a lot more to the US market than Europe would.
But can we really take any of these data points seriously given the way in which they’re collected? Over dinner one night last fall, Jim Chanos suggested that China be called “The People’s Republic of Madoff,” having gotten a close look at how they “make” their numbers over there. At a recent conference I attended, Gary Shilling, a noted bear said this: “China has areas of the country that are accessible only by oxcart and event then only when the weather is dry – yet they still manage to put out a GDP number 21 days after the close of the quarter. Someone high up says ‘We’re gonna have 8% growth this quarter, right?’ and the statistician says ‘Coming right up, boss!'”
Bloomberg BusinessWeek is out with an eye-opener about how the stats are collected and what the government is trying to do to instill a greater accuracy:
China’s statistics bureau said local officials forced some hotels, coal miners and aluminum makers to report false numbers, highlighting flaws in data tracking the world’s second-largest economy.
Statistics officials in Hejin city in northern Shanxi province gave companies “seriously untrue” numbers to submit for 2011, the Beijing-based National Bureau of Statistics said in a statement on its website dated March 12.
Discrepancies between national and local numbers for gross domestic product indicate the task that remains for officials seeking to bolster confidence in the statistics system. So far, steps have included crackdowns on leaks of market-moving numbers and direct online reporting of data by companies to limit opportunities for provincial officials to massage the numbers.
My friend David Merkel at the Aleph Blog had this to say about the piece: “after you read this, explain why you might trust Chinese statistics. I reminds me of AIG where bad news had a hard time traveling to the top.” A frightening comparison but an inescapable one.