By Jim Randle
Some investors say China’s wild stock market gyrations have been made worse by worries about the reliability of that nation’s economic data. Critics say the reports can mislead investors by painting an unrealistically strong picture of the economy. Some economists doubt the official growth figures because other data, such as passenger travel and electric power generation, seem too low to be consistent with strong growth.
But China scholar Nick Lardy of the Peterson Institute for International Economics says Beijing is not manipulating the numbers, but the economy is evolving quickly from smokestack industries to services, and the ways of tracking new economic activity are falling behind the change.
China is the world’s second-largest economy, a huge trading nation and a massive importer of everything from advanced machinery to commodities. So economic weakness in China affects trading partners and stock markets around the world.
Stock prices in Shanghai and elsewhere have been plunging or swinging wildly recently, in part because of fears that China’s economy is not growing as fast as some investors expected. On Wednesday for example, Shanghai’s key index gained and lost 3 percent, to end the day with a loss. U.S. stocks have gone from sharp falls to strong gains over the course of a few days.
Economic weakness and uncertainty worries investors. When many frightened investors sell stocks, it drives down prices. The fears are sharpened by worries that the reality is even worse than the official data show.
New York Stock Exchange trader Ben Willis says many investors thought the Chinese economy was growing at 7 percent a year. But now he thinks “It’s probably only growing at half that. So a 50 percent reduction means you need to reprice, and that’s what you’re seeing going on in the stock markets and in the commodity markets.”
Vast expansion of major industries was part of unprecedented economic growth in China, and Peterson China scholar Lardy says Beijing is better than most emerging economies at the relatively straightforward task of measuring industrial output, particularly from state-owned enterprises.
But Lardy says much of China’s economic growth is now coming from the services sector, which is largely made up of smaller, more diverse and harder-to-track private companies.
He says services include “Everything from retail and wholesale, restaurants and hotels, financial services, including banking insurance, securities, asset management.
Lardy says restaurants are a good example of the growing services sector.
“When I first went to China, there were practically no restaurants. Now there are millions and millions of restaurants,” he said. “Collecting the data on all these small firms in the restaurant business is very, very labor intensive. ”
Lardy says better data would help Chinese leaders make better informed decisions on economic issues. But he says the group of workers collecting data in China is “teensy” [very small] in comparison to the $10 trillion size of the huge, diverse and fast-changing economy.