Don't read too much into GDP figures

PUBLISHED : Thursday, 08 March, 2012, 12:00am
UPDATED : Thursday, 08 March, 2012, 12:00am


Hong Kong stocks posted their biggest single-day decline in three months, losing more than 2 per cent, as stock markets in the region retreated after Beijing sparked fears of a slowdown by cutting its economic growth forecast to below 8 per cent.

SCMP, Wednesday

Ihave always been of the view that economic growth is like a car with a three-speed manual transmission. Your three speeds in gross domestic product are slow, fast, and nonsense.

Not only is gross domestic product an imprecise measure in relying heavily on surveys that often reflect receding or bygone patterns of economic activity, but it does not amortise income-producing assets that have finite lives, makes no distinction between wasteful and productive work, and pretends to accurate measurements of inflation for everything it covers.

This may still give you enough to work out whether your economy is growing quickly, slowly, or not at all, but setting out growth numbers in decimal places is presumption. And if your economy is moving in reverse, don't bother to set out any numbers at all.

It is even worse on the mainland. Only a few years ago the National Statistics Bureau (NSB) announced one day that it had discovered a 16 per cent-sized slice of the economy never seen before. This was then incorporated into the figures, adjustments made for the past and the whole thing treated as a minor blip. Might you have any more unseen trillion-dollar bits of the economy hanging about, fellas?

And then there is that annual occasion for laughter when the provinces make their economic reports. Add up all the provincial GDP figures and not only do you get a much higher total than the official national figure, but the average growth rate is much higher. Only one or two provinces ever make the mistake of reporting less than the national growth rate. Some governors just don't know their jobs.

Being a bit of a nerd in these matters, I once added up the county GDP figures of a few provinces (yes, they actually make the pretence of reporting county GDP to two decimal places) and, of course, the sum of the counties was also greater than the whole for the provinces.

I have my own index for China's GDP. It consists of the average of electricity-consumption growth and the growth rate in freight carried on national railways. It is not really my own concoction. It was suggested to me once by a provincial official who said these were the only statistics he trusted.

The first chart shows you that my index indicated higher GDP growth than officially reported in the boom years of 2004 to 2005, an actual recession in 2009, and no leading indication at present of Premier Wen Jiabao's forecast of a slowdown to 7.5 per cent this year.

I fully understand why he should want to shift the economy's emphasis towards the consumer a little. As the second chart shows, household consumption's share of the economy has fallen dramatically over the last 10 years. What is the point of economic growth if the people whom it is meant to serve never get to cash in?

But what I don't understand is why stock markets across Asia should take great fright at a slight downward adjustment of the mainland GDP forecast - to what is still a very commendable growth rate - when these figures are largely NSB mush, and when Wen pretends to much greater control over the economy than he can actually exert.

It may be a trigger (although not a cause) for selling of some overpriced mainland issues listed in Hong Kong, but I can find better reasons than this for gloom in Japan and Singapore.

Let's keep a question mark posed in the air here.




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