China Admits Inaccurate Economic Statistics

In an article yesterday in ZeroHedge, Tyler Durden recalls from earlier this summer, “problems with the industry-specific data underlying the Chinese Purchasing Manager’ Index (PMI) numbers.”

“Fast-forward to last week,” notes Durden, “and the greater-than-50 PMI print heard around the world, which provided just enough momentum ignition to warrant more optimism in world equity markets that the second-half of the year would indeed prove to be a mythical renaissance.”

“It turns out that China’s official National Bureau of Statistics has admitted that, ‘we can’t ensure all industry-specific data can reach accuracy requirements,’ adding that they ‘were concerned that some of the numbers may affect related investors and users.’”

Translation – the data in some industries was so bad that by telling the truth, our data would have become viciously self-fulfilling for their demise.”

Via Bloomberg,

China suspended the release of industry-specific data from a purchasing managers’ index for manufacturing because of accuracy concerns, the National Bureau of Statistics said.

That halt underscored concerns over China’s economic statistics, from exports inflated by false invoicing to a national unemployment rate that excludes the nation’s millions of migrant workers.

“We can’t ensure all industry-specific data can reach accuracy requirements,” Sheng Laiyun, a statistics agency official, said at a briefing in Beijing today. “Samples in some industries are very small, and accidental changes may affect overall data quality — we were concerned that some of the numbers may affect related investors and users.”

“I don’t buy NBS’s explanation — industry-specific data has been there for years and proved very useful in reading the Chinese economy,” said Xu Gao, chief economist with China Everbright Securities in Beijing, who previously worked for the World Bank. “Without these specific data, the credibility of China’s headline official PMI indicator is undermined,” Xu said, adding his firm has subscribed to the data for more than three years.

Castalia Commentary

China’s official PMI rose to 50.3 in July from 50.1 in June as Chinese Premier Li Keqiang via stealth rolled out an “Unofficial Economic Stimulus” policies to arrest an economic slowdown. Clearly, the underlying “ugly” PMI data was the cause of the expansionary monetary program. The Chinese Central Government is not only concerned about investor expectations, the potential impact of economic data affecting investors, but it is also uncomfortable if the data indicates economic policies are ineffective.

The Chinese economy is apparently under greater stress than analysts and markets forecasted. The “Unofficial Economic Stimulus” is a response to prime the economic/financial system. The actions of the Chinese Central Government may increase economic activity in the short-term, however, it may also increase debt and non-performing loans (“NPLs’).  China may produce more “Ghost Cities” or “Ghost Infrastructure Projects,” good for GDP statistics, but putting China on a faster “Treadmill to Hell” (Jim Chanos).

For the shipping industry, we now understand why marine transportation rates were awful, at least until the rollout of the “Unofficial Economic Stimulus” policies by Premier Keqiang.

How long these policies will facilitate a strengthening in rates is questionable, however, when the funding slows and the economy falters, shipping rates may again revert to their previous lows.

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