In 2019, economists at the San Francisco branch of the
US Federal Reserve published a paper examining the extent to which China was “fudging” its economic statistics. Like many analysts, they used an alternative source of data to gauge Chinese growth, opting for imports – on the grounds that exports reported by China’s trading partners were externally reported statistics “unexposed to domestic manipulation”.
Concerns about the reliability and quality of data in China
are hardly new but they have intensified since the country became more deeply integrated into the global economy. Part of the problem is the inherent difficulties in trying to get a clear picture of what is happening in a huge economy transitioning from central planning to free markets and struggling to keep up with the statistical requirements for measuring output in a consumer-oriented economy.
However, the lack of confidence in China’s data has been exacerbated by increasing clampdowns on
access to sensitive information under President Xi Jinping, making it more difficult for China-watchers to gain deeper insight into the state of the economy, not to mention policymaking in Beijing.
Yet
distrust of statistics is not just confined to China. There is also a significant trust deficit – one which could prove hugely consequential – in the United States. The problem with China’s data is that it is unreliable. In the US, by contrast, it is skewed by political partisanship, so much so that it is shaping the economic narrative and exerting influence on politics and policy.
It is bad enough that investors are struggling to interpret data correctly in the world’s biggest and most influential economy. Not only has this caused wild swings in the prices of bonds and stocks, it has created unrealistic expectations that the Fed will cut interest rates aggressively this year despite a persistently strong jobs market and exceptionally loose financial conditions that risk fuelling inflationary pressures.
However, the gap between perception and reality is much wider when it comes to soft data, such as business and consumer surveys. Objectively speaking, the US economy is performing extremely well compared with its peers. Inflation has fallen sharply in the past year. According to some measures, the Fed has already met its inflation target of 2 per cent.
