‘How Is That Possible?’ China’s Growth Figures Interrogated

I tried to be generous while documenting China’s first quarter growth figures, foisted on a skeptical world Monday.

The headline GDP print, at 4.8%, easily beat estimates, and although March’s activity data did show the expected decline in retail sales, the rest of the widely-cited figures beat. The surveyed jobless rate rose, but nobody pays much attention to that number.

In short, it appeared as though Beijing used the January-February rollup (which you may recall was suspiciously robust) to set the stage for a GDP release aimed at reassuring both domestic and international audiences that the world’s second largest economy can meet this year’s targets despite the overhang from COVID lockdowns, an acute property slump and severe regulatory drag.

Read more: Chinese Retail Sales Slump May Overshadow GDP Beat

Suffice to say analysts came away dubious.

SocGen’s Wei Yao and Michelle Lam preemptively suggested the data might “beat” and in a postmortem published Monday, they expressed what I’ll call reservations.

“The data might or might not capture the true degree of losses in growth momentum up to end-March, but following the lead of the National Bureau of Statistics, we are revising up our annual GDP growth forecast from 4.3% to 5% for 2022,” they said, effectively conceding (without saying as much explicitly) that when all you have to go on is the official data, you may find yourself compelled to mark your forecast to numbers you don’t necessarily think are accurate.

Despite their upwardly revised forecast, Wei and Lam didn’t mince words. “In reality, the economy is in distress,” they wrote, adding that (heavily abridged),

There is nothing in today’s data arguing against further policy easing. The housing sector woes deepened. Besides the contraction in investments, sales contracted again by more than 40% and floorspace under construction slumped 17.5%, both despite positive base effects. Starts were down 64%, better than that in January and February only because of a positive base effect. We have seen many property-sector easing measures in the past month, but none could be of help right now because of lockdowns. Looking ahead, the fortune of exports and imports will probably be reversed at some point, with exports to be hit by supply disruptions (in April at least) and weakening global demand (likely more visible in H2). Meanwhile, imports would be propped up by elevated commodity prices, and domestic investment stimulus once lockdowns ease (expected in H2). If so, the trade surplus will narrow notably. Credit and money data surprised positively in March, as the state proved itself still effective in firing up the credit engine in times of need [but] the details suggested that the recovery was still on shaky ground.

The full note went into considerably more detail, but you get the point. The title of the piece was, “The economy is calling for help.”

Similar concerns were voiced by other analysts, including Nomura’s Ting Lu, who said that in the bank’s view, “actual GDP growth could be a lot weaker than the 4.8% official Q1 data suggest, as the strong activity data of January and February seem inconsistent with some alternative data sources, and in March, the economy clearly tumbl[ed].”

One polite analyst at Standard Chartered said it’s “rather difficult to explain how the published figure can be so strong.”

For his part, Rabobank’s Michael Every delivered a characteristically colorful critique. “Somehow… we got a far stronger print, show[ing] COVID, and Chinese data, don’t matter,” he wrote, before asking,

Does one ask how that was possible when March data saw retail sales -3.5% YoY, below consensus of -3.0%, down from 1.7% and yet higher than expected at 3.3% YoY year-to-date versus a 6.7% print in February that already didn’t match what any retailer is seeing? When fixed asset investment, albeit above consensus, slowed to 9.3% from 12.2% YoY even as property investment was weaker than seen at just 0.7% from 3.7% YoY? And industrial production rose to 5.0% from 4.3% YoY – which must have been via net exports — despite port closures! Does one ask why monetary policy was eased last week anyway? Does one ask why China just announced details-free economic stimulus measures? Does one ask how local-government debt to build more infrastructure is ‘consumption’?

Every also chided export rebates, which he (correctly) called “a de facto subsidy.” “If China thinks it can grow its way out of a structural crisis by flooding the world with more goods again, then it’s in for a real shock,” he remarked.

I suppose what I’d ask, going forward, is this: How is anyone supposed to make macro projections when the world’s second largest economy (which will be the world’s first largest economy sooner than the US government cares to admit) is now putting out data that virtually nobody believes?

To be sure, analysts have long questioned the numbers out of Beijing, but people are becoming more vocal about it.

The (paradoxical) saving grace may be that macro forecasting was already an exercise in abject futility. Truly futile endeavors can’t get “more” futile. There aren’t degrees of pointlessness, although, as noted here, there are degrees in it.