Beijing wizardry does the trick

May 14, 2009

Beijing wizardry does the trick
By Olivia Chung

HONG KONG - China's shares, which have led this year's global stock rally, continued their remarkable gains on Wednesday after the government announced that industrial output climbed 7.3% in April from a year earlier.

Never mind that the output gain was less than economists had expected, and was down from the 8.3% year-on-year increase in March. Rather, be amazed that so much more was produced even as the country's power output declined 3.5% in April, more than double the pace of the 1.3% power output fall in March.

Output also surged even as exports collapsed more than 22% in April and after overseas investment in the country slumped for a sixth month in March to be down about 21% in the first quarter from a year earlier.

Millions of Chinese workers have been thrown out of work as US and European consumers of China-made goods rein in spending; the number of jobless could be less than 5% - or almost 10%. But whatever it is, the wizards of Beijing, it seems, are successfully transforming the economy with barely a hitch from one that is dependent on overseas sales to one thriving on domestic demand.
The alchemy alleged to be doing the trick is the government's 4 trillion yuan (US$570 billion) economic stimulus package announced in November, with big-ticket items such as railroads and other infrastructure projects featuring strongly.

Urban fixed-asset investment grew a more-than-expected, and quite remarkable, 30.5% in the first four months of this year, according to Bloomberg, citing reports released on Tuesday.

In the process, Beijing officials are magically persuading the country's shoppers - or those still in work - to spend more and more, just as their livelihoods, just like those of their counterparts in the West, are threatened by almost unprecedented economic storms.

Retail sales in April surged 14.8% from 12 months earlier, says the government, after a similar jump in March, mocking critics who say Chinese people spend too little and save too much for that inevitable rainy day.

All that, of course, is if you believe the figures. Many analysts, including inside China, do not, and even the government is showing its concern, introducing a new law from May 1 aimed at getting more reliable numbers. That may lead to improved understanding of important parts of the economy such as auto sales, which feed into the retail sales figures, and home sales - a key economic indicator as well as being a factor in sales of things such as home appliances and furniture, which again feed into the retail sales data.

As a cause of national pride, China now claims to be the world's biggest car market, with vehicle sales setting a record of 1.11 million units in March, the third straight month they have exceeded sales in the US.

Sales of domestically produced motor vehicles, including passenger cars, buses and trucks, in March rose by 5% from a year earlier, according to the China Association of Automobile Manufacturers (CAAM), an industrial body. The increase has been interpreted as evidence that the Chinese government's stimulus policies are taking effect. This year, retail taxes on small cars have been halved and the government plans to give 5 billion yuan in vehicle subsidies in rural areas to push automobile purchases, after sales growth had slowed in 2008 to a 10-year low of 6.7%.

Auto analyst Peng Qing (not her real name) is more skeptical about the auto sales figures, after trying in vain to get authoritative and comprehensive data to carry out her work at a Beijing research company.

"Data received from industry associations and public security authorities is always found to have lies and discrepancies," Peng said.

Muddying the waters is the issue of whether the count is made of cars issued with new license plates. "Due to it issuing new license plates, the Public Security Ministry is a leading source of comprehensive and authoritative auto data. Such data is available on a regular basis overseas, but it is not made public in China," Peng said.

It is, however, available in China at a price.

A senior official of a Chinese automaker, who preferred to remain anonymous, said his company bought authoritative license-plate data from a transport management and research institute directly under the Public Security Ministry, which required its "preferred" customers to sign a confidentiality agreement not to release the figures. Even then, the data the automaker could obtain was severely limited. "We buy only the detailed figures relevant to similar models that are produced by us and our competitors - but it costs at least one million yuan a year," the company official said. More data is available for more cash.

The discrepancies between data on last year's passenger car sales disclosed by industry association CAAM and the ministry data on 2008 newly registered license plates are huge, according to another auto analyst, Zhang Yong (not his real name), who said he obtained his Public Security Ministry data through an "unofficial" channel.

"As the public and the media are denied access entirely to the authoritative data on vehicles with registered license plates, the figures given by most automakers are always 'injected with water," he said.

The country's leading auto producer for the past four years, FAW-Volkswagen, sold 513,000 vehicles in 2008, according to the industry group CAAM. However, the number of its cars newly registered with license plates last year was only 467,000 units, according to Zhang, using his ministry data.

Sales by China's top 10 automakers as provided by their industry body are on average about 10% higher than those indicated by licenses being issued, Zhang said. The biggest discrepancies, as much as 21%, are evident in the vehicle sales of BYD, in which US investor Warren Buffett has a 9.9% stake. According to CAAM, Shenzhen-based BYD, also noted for its battery-making business, sold 166,700 vehicles last year, while only 137,700 of its vehicles were registered with license plates, based on Zhang's ministry data.

CAAM vice chairman Gu Xianghua, conceding that it depended on the automakers for its data, said the association had called for disclosure of license plates data.

The picture is little better when it comes to property sales, despite these being a key indicator to the health of the economy.

Apartment sales in Dongguan, a heavily industrialized part of southern Guangdong province hard hit by the export downturn, dropped last year by 40%, according to the information website of the Dongguan housing administration bureau. Not so, according to a report by the Guangdong statistics bureau and a task force deployed by the National Bureau of Statistics (NBS), which claims sales fell only 10%, to 5.096 million square meters.

Similar data discrepancies crop up in other cities, including Shanghai and Beijing.

If the country apparently has only a vague idea of how many cars are being bought or houses sold, it may have even less of a clear a picture of who can afford to buy them.

The unemployment rate in urban areas at the end of last year was 9.4%, according to the latest Analysis of and Forecasts for Social Development (or the Blue Book on Chinese Society), released last December by the Chinese Academy of Social Science (CASS), an academic research body directly under the State Council, or cabinet.

The CASS figure was twice the 4.5% registered unemployment rate for the period claimed by the Human Resources and Society Security Ministry. In April, Human Resources Minister Yin Weimin said the urban registered unemployment rate was 4.3% at the end of March, from 4.2% at the end of December.

Concern over unreliable statistics, and the danger they pose to government planning and spending, has prompted the government to set new regulations under which anyone who makes false reports or compiles fake data can be fired. The new rules came into effect on May 1.

"It was an open secret that local officials used bogus numbers to exaggerate local economic growth, impress superiors and win promotion, while many employees at statistics offices bowed to political pressure to report false data," a government spokesman was quoted in a Xinhua report as saying.

Top officials, including those at state-owned enterprises, who give instructions on faking statistics now face demotion, dismissal or unspecified criminal punishment. It is the first time government officials can be held responsible specifically for statistical corruption, Xinhua said. Misleading figures impair information on which macro-control policies are based and seriously undermine the Communist Party and the government’s credibility, the report said.

Peng and Zhang questioned whether the new rules would change behavior on the ground.

"Besides, the rules mainly target government agencies and state-owned enterprises," said Peng. "I don't see that the big or private enterprises will stop from exaggerating their sales."

A CASS researcher, Yi Xianrong, said data would improve only if the government altered its policy of evaluating local officials based on their ability to boost growth. Until then, officials were unlikely to change their attitudes towards faking statistics.

"The big issue is about the interface between business and government, and it's not easy to deal with by such regulations," he said.

Meanwhile, the benchmark Shanghai Composite Share Index, which has soared more than 44% this year, gained 1.7% on Wednesday. And Goldman Sachs expects economic growth to pick up even more pace - to 8.3% - this year. "We expect domestic demand growth to further strengthen," the US bank said last month.

The government is more modest - 8% growth will be fine, it said this month.

Olivia Chung is a senior Asia Times Online reporter.

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