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The black and white behind the statistics
Putting the pin to the balloon that mainland foreign direct investment figures can be trusted about as much as its baby milk powder
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Mainland records drop in foreign direct investment for the ninth month, raising concern over the manufacturing industry
SCMP subhead, November 12
For the last four years, an odd sight has greeted shoppers checking out their grocery purchases at supermarkets around Hong Kong.
Along with the high-priced brandies and other valuable items kept on shelves behind the cashier in order to discourage thieves, there are shelves carrying only tins of baby milk powder.
We all know the reason. Mainland residents don't trust the baby milk they are sold in their own shops and would clean Hong Kong out if they had the chance.
It's also why hundreds of human pack mules go back and forth across the border daily to bring mainland consumers goods purchased in Hong Kong.
It's not about price. It's about trust.
Knowing this, as we all do, I find it even odder that we so easily take statistics published in Beijing as black-and-white truth about the performance of the mainland economy.
They put a lot of time in Beijing into churning out foreign direct investment figures. You can get them not only by number of contracts, value of contracts and capital utilised but by type of contract, type of foreign investor, province, city and even district.
Did you know, for instance, that the pledged value of FDI projects in Jiangsu in the mining and quarrying industry in 2007 was US$57.71 million? That's right, two decimal places. Wow, these statisticians are hot.
Let's put the pin into the balloon here. The bottom line in the first chart shows you a 12-month running total of FDI as calculated by the Ministry of Commerce and as reported by us yesterday under the subhead I quoted above.
The top line gives you the 12-month running total of FDI as calculated by the People's Bank of China and reported in the semi-annual balance of payments statistics. On offer is a free bottle of Scotch to anyone who can point out any similarity between the two.
It's all bull****. Your basic rule of thumb in these matters is to trust mainland investment statistics about as much as you do mainland baby milk powder.
The way it actually works is that most FDI coming into the mainland is actually the net cash flow on export sales that were underinvoiced on their way out in order to evade mainland taxes. The added benefit is that reporting this money as fresh investment makes it easier to take that money out again later.
Most of the necessary arrangements are made through a world-class laundry shop, namely Hong Kong, and Beijing can ratchet up the net inflow any time by pushing the yuan stronger against the US dollar, as it is now doing again. This actually creates a speculative inflow but we can easily call it FDI. I have just done it. You can do it, too.
And if any re-labelling of capital flows causes you "concern over the manufacturing industry", I refer you to the second chart for comfort.
Yes, the mainland's export growth is slowing down, but in the rest of Asia, exports are now in decline overall. It has nothing to do with either the mainland or the rest of Asia. Consumers in Europe and America are nervous about their own prospects, that's all.