120712 deeper slowdown suspected in china
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Thursday, July 12, 2012 As of 2:01 PM
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ASIA BUSINESS Updated July 12, 2012, 2:01 a.m. ET
Deeper Slowdown Suspected in China
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World
Ahead of the Tape
China Digs Into Its Pro-Growth Toolbox
Beijing Lifts Spending As Growth Weakens
By TOM ORLIKAndAA RO N BA CK
BEIJINGOfficial data due this week are expected to show growth in China slowing to its
lowest rate since the global financial crisis. But some economists say they are turning up
evidence that the true picture could be even worse.
China's National Bureau of Statistics is
scheduled to report second-quarter gross
domestic product growth on Friday, and
according to a Dow Jones poll of 15
economists, it is likely to show the
country's economy grew by 7.6% from a year earlier. That is down from 8.1% growth in
the first quarter, and the slowest pace since the first quarter of 2009.
Coming hard on the heels of a weak jobs report in the U.S in June, and fading business
sentiment in European economic powerhouse Germany, fresh evidence of slowing growth
in the world's second-largest economy would be a further blow to an already fragile global
recovery. If, as some economists suspect, growth is even slower than the official data
suggest, that would compound fears that China is poorly placed to help lift the world
economy out of its slump.
Economists have responded to long-
standing doubts about the reliability of
official data by constructing their own
indexes of China's growth. Typically these
are based on measures such as electricity
production, rail freight and real-estate
construction that should track growth
closely but are regarded as less prone to
political interference.
London-based research firm CapitalEconomics created its own index during
the last major downturn during the 2008-09 crisis. "We created a proxy of Chinese
economic activity in order to answer doubts about the data, somewhat to our surprise it
generally runs in proximity to the official numbers," said Mark Williams, an economist at
the firm. "But particularly at the beginning of this year they began to diverge. So doubts
about the quality of the data are justified."
Capital Economics's proxy indicator suggests that China's economy grew by around 7.6%
in the first quarter of this year, half a percentage point lower than the official GDP figure.
Similar results reached by other analysts
have led some to suspect that the data are
Economists who doubt the reliability of China's official
gross domestic product figures are using other methods
to measure China's growth and finding mixed results,reports the WSJ's Aaron Back.
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"smoothed" and become less reliable
during periods of rapid slowdown or strong
growthtimes when the margin for error in
calculating the true rate of growth also
may be higher.
Friday's numbers will be underpinned by a
new approach to collecting data on
industrial output, a key measure of China's
growth, accounting for about half of GDP.
Under the new approach, in place since February, China's biggest 700,000 enterprises
report data directly to the NBS over the Internet. That replaces a system where many
reported to local statistics offices, and information was then transmitted from town, to city,
to province and to national levels.
The latest approach is intended to
overcome one of the main flaws in China's
data systemexaggeration of the growth
rate by ambitious local officials. A notice
on the National Bureau of Statistics
website in February announcing the change called on businesses to "submit data
independently, resisting any attempts at interference."
That warning to avoid interference may have been prescient. A report in the Chinese
press in April, reproduced on the NBS website, cited many instances of abuse of the new
system, with some local officials requiring businesses to co-ordinate with local statistical
offices before reporting their data, effectively reintroducing the possibility of political
interference.
Responding to the reports of abuse in an
April statement, Ma Jiantang, the head of
the NBS, said "there are still a few low-
level officials that are ignoring the statistics
law and the statistics system, using overt
and covert devices, to interfere with the
independent and authentic reporting of
data by businesses."
Recently, doubts have been raised that
electricity-production datawidely viewedas a reliable proxy for China's growth, also
may be subject to political interference,
with suspicion that local leaders may be encouraging power producers to exaggerate
growth rates.
Standard Chartered economist Stephen Green thought concerns over the electricity data
were serious enough to warrant a switch to a new proxy for growthdemand for gas and
diesel. This replacement indicator, though, still suggests "sluggish growth rather than
recession," he wrote in a recent note, similar to the story told by the official GDP data.
Others believe fears of exaggeration in the electricity datawhich registered a dismal
2.7% year-over-year growth rate in Mayare overstated. Power generation is dominated
by five major state-owned companies in China, which together account for just over half of
total electricity outputreducing the scope for local officials to distort the data.
Mr. Lu, manager at a power plant in eastern China, a unit of the state-owned China
Guodian Corp., said the plant's output data are transmitted automatically by a computer
system to the local municipal statistics bureau. "We need to make daily, monthly and
annual reports," he said. "There is no way to falsify this."
Incentives for local leaders may be aligned against exaggerating electricity output. "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,"
said Bank of America Merrill-Lynch economist Lu Ting in a note.
Yoli Zhangcontributed to this article
Enlarge Image
Associated Press
A construction worker climbs on scaffolding next to anadvertisement, high above Beijing's Central Business
District on Wednesday.
Enlarge Image
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A version of this article appeared July 12, 2012, on page A10 in the U.S. edition of The Wall Street
Journal, with the headline: Deeper Slowdown Suspected in China.
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