Albert Edwards Exposes China’s GDP ‘Beat’

In “Roses Are Red,” I gently suggested market participants should cast a wary eye at China’s ostensibly robust GDP figures.

China is mired in deflation, according to its statisticians. One economist at S&P Global said Chinese officials are “basically overstating real growth” when PPI falls, and quite possibly by a lot.

On Thursday, SocGen’s Albert Edwards spelled it out in simple terms.

“As far as I have always understood how GDP statistics work, it is the nominal pulse that is accurately measured. Then, after statisticians make some informed guesses as to what prices are doing, ‘real’ constant price GDP pops up in the spreadsheet,” he wrote. “Hence for China to meet its 5% ‘real’ GDP target merely requires the statisticians to ‘assume’ prices are falling sharply.”

As the two figures above suggest, China’s GDP deflator is doing the heavy lifting. Nominal GDP growth in China is nowhere near the pre-COVID run rate. “Call me a cynic, but that 4.9% upside surprise on real GDP was effectively only achieved because of the surprisingly sharp 1.4% fall in the GDP deflator that was then added to weak 3.5% nominal GDP growth,” Albert said.

I’m compelled to quote myself, which in this case means recycling some language from the article linked here at the outset (which you should read, if you haven’t yet).

It’s not so much that China’s data is fabricated, per se. It’s that in an autocratic, centrally-planned state where the regime depends heavily on economic performance to legitimize its grip on power, it’s not unreasonable to suggest that officials are under immense pressure to manage the data such that the economy meets or exceeds stated (and state) targets.

Edwards on Thursday echoed that, in his own way. “Hey, maybe there isn’t a Chinese deflation problem after all?” he quipped. “But if so, that means real GDP growth is much weaker than is being officially reported. Keep that quiet!”