China’s Fiddled Figures: It’s hard to reform an economy you don’t fully understand
May 10, 2013 Leave a comment
May 9, 2013, 12:49 p.m. ET
China’s Fiddled Figures
It’s hard to reform an economy you don’t fully understand.
Trade data released Wednesday painted a rosy picture of the Chinese economy. But the closer everyone looks, the more doubts emerge.
Officially, exports picked up enough to create a trade surplus worth $18.2 billion, compared to a deficit of $900 billion in March. Total exports supposedly increased 14.7% compared to April 2012, up from the 10% year-on-year growth notched in March. This sparked hopes in some quarters that disappointing GDP growth in the first three months of the year was a blip.
Yet China’s export data don’t match what other countries report they import from China. That’s because Chinese exporters overstate the value of goods to conceal the repatriation of earnings stockpiled overseas. Firms are circumventing capital controls to speculate on the rising yuan, and also to seek higher returns on risky wealth management products offered by banks at home. This inflow shows up as artificially inflated exports.Meanwhile, those investments in wealth management products are worrying banking analysts. A new report from research firm CLSA Thursday, not-so-subtly titled “Debt Crisis,” analyzes the rapid growth in the shadow banking system. It estimates that China’s consumers, companies and governments combined are now indebted to the tune of 205% of GDP, a figure that is broadly in line with the 198% of GDP previously estimated by Fitch Ratings.
While today’s level of debt is probably sustainable, CLSA, Fitch and others worry that China may eventually face a debt crisis of some sort, since the rate of credit creation now far outpaces the rate of economic growth. Further complicating matters, it’s not clear how much Beijing or anyone else really knows about where China’s debts are hiding. Much credit creation now happens off balance sheets, whether through so-called wealth-management products at banks or special funds set up by local governments.
The Chinese cabinet promised last weekend to deliver new reforms intended to steer China toward less reliance on exports and investment and greater dependence on domestic consumption for growth. Whether Beijing can pull off the tricky transition when policy makers lack a clear picture of the macroeconomy is another question.
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