Rival inflation index created by Chinese e-commerce giant Alibaba that suggested China’s official inflation numbers might be too low prompts China’s National Bureau of Statistics into rebuttal action

May 21, 2013 Leave a comment

May 20, 2013, 7:04 PM

Inflation Deflated? Evaluating the ‘Alibaba Index’

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How high is inflation in China? Some suspect it is higher than is captured in the official consumer price index. A new measure developed by e-commerce giant Alibaba Group Holding Ltd. seems to give that idea some credibility. The official CPI puts inflation at 2.4% year-on-year in April. Alibaba’s Internet Shopping Price Index – based on transactions on the firm’s Taobao and Tmall websites – puts it at 6.9%. After an article in The Wall Street Journal drew attention to the discrepancy, China’s National Bureau of Statistics went into action. They pored over the description of the Alibaba index (in Chinese), and dispatched researchers to Hangzhou to interview its creators. They came back with two key conclusions.

First, the Alibaba index has a different scope to the CPI, reflecting the different type of goods purchased on the Internet. Food and accommodation make up about 50% of the CPI basket, the NBS notes, while in the Alibaba index they account for only 6%. The type of food in the Alibaba index is typically packaged goods, where the CPI includes fresh meat and produce. Services like health and education are an important part of the CPI, but not the Alibaba index.

Second, where the CPI takes careful account of changes in quality, the Alibaba index doesn’t. That means if there’s a drift from cheap Li Ning trainers to expensive Nike running shoes sold on Taobao and Tmall, that would show up as inflation, when in fact it wasn’t prices that had changed but the quality of goods.

An Alibaba Group spokesperson said that was an issue, saying that a rapid upgrade in the quality of goods sold online was difficult to control for in the index. Alibaba’s spokesperson also said that different seasonal patterns of spending online, as well as promotions and sales, accounted for some of the fluctuation of the firm’s Index.

The conclusion from the National Bureau of Statistics: “The differences in coverage and methodology in the CPI and the Alibaba Index means that differences in the results are inevitable and normal.”

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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