China could wave goodbye to its GDP data discord as the national statistics bureau chief claims that he will unify provincial and central GDP calculation methods and improve grassroots statistical quality this year.

Ma Jiantang, head of the National Bureau of Statistics (NBS), has criticized some local officials who inflate the GDP figures they report to the NBS. The problem has affected the nation’s statistical credibility and produced disunity between central and provincial data, Ma said.

The aggregate of the GDP figures reported by local governments reportedly is often larger than the overall national figure released by the NBS, arousing concerns that the local governments may have rigged the statistics to show how capable they are of managing local economy.

The new move by NBS is expected to change that, at least partially.(…)

According to the bureau, in the first half of 2009, the sum of provincial GDP figures exceeded the national GDP figure, calculated by the bureau independently, by more than 1.4 trillion yuan, or about 10 percent of the total GDP. In 2004, the difference was 3 trillion yuan, or 19.3 percent of the national GDP that year, which was the biggest gap in history.

Ma said that some provinces reported 18 to 20 percent year-on-year GDP growth amid the country’s economic slowdown in 2009. This has raised an alarm for statisticians, because the national GDP growth in that year was only 8.7 percent.

China will release quarter-on-quarter growth data this year, which will help monitor the economy’s short-term growth trend more effectively, Ma said. (…)

Full China Daily article


China’s Next Mountain to Climb

Michael Spence is the 2001 Nobel Laureate in Economics, and Professor Emeritus, Stanford University. Some extracts of his interesting article:

(…) Indeed, China has arrived at a point where its impact on the global economy is systemically important. But it has reached this point at a much lower level of per capita income than any systemically important predecessor. (…)

With a per capita income of around $4000 (more with purchasing power adjustments), important parts of China’s economy are already, or are now entering, middle-income status. This is a difficult transition, during which many countries have lost momentum as structural transformations stall. (…)

China has faced daunting challenges in the past – and has generally outperformed the forecasts of skeptics. But now China must face global pressures and responsibilities as well. (…)

China must confront the challenge of domestic restructuring to sustain growth, while asserting the right to develop without being penalized because of its size. But it must also assume greater responsibility for global imbalances, economic and financial stability, and governance, as well as represent the interests of less powerful developing countries. The rest of the world has a huge stake in the outcome of this complex balancing act.

From Project Syndicate



China’s 2010 Lending Quota Not a Threat to Recovery

Investors remain nervous about the potential impact of Chinese lending restrictions on global economic growth. In recent days, it was reported image that several banks had ordered some branches to suspend new lending for the rest of this month since activity was getting above target. Recall that on December 16, 2009, the Chinese authorities instructed the banks that new loans were not to exceed 7.5 trillion Yuan ($USD 1.1 trillion) in 2010. This is down from 9.5 trillion Yuan in 2009 but it is still more than twice the 2008 level.

As today’s Hot Chart shows, the other thing to keep in mind is that in order to achieve the 2010 loan target, the six-month cumulative sum of new loans must actually accelerate significantly from its December 2009 level of 2.2 trillion Yuan (most of the new loans in 2009 took place in the first half of the year). As such, we do not view China’s 2010 loan target as being a significant drag on growth. We are in agreement with the just-released IMF projection which now pegs global GDP growth at close to 4% this year (revised from 3.1%).

NBF Economy and Strategy Group

image The next chart from The China Daily proves NBF’s point. It could be that both corporations and banks anticipate restrictive measures during the last part of the year and pile up in the early part.


China’s consumer confidence index rises in Q4 of 2009

China’s consumer confidence index (CCI) rose to 103.9 in the fourth quarter last year, up 3.1 percentage points from the previous quarter, said a report released on Jan 26 by the China Economic Monitoring & Analysis Center under the National Bureau of Statistics.

The rise was largely due to consumers’ optimistic judgment on the country’s economic outlook and strong expectation for employment and personal income, said the report.

It also showed 79 percent of Chinese consumers were optimistic toward the country’s macroeconomic situation, an increase of 36 percentage points from the third quarter.

The report revealed that personal income and health remained top concerns, with 43 percent of respondents saying they paid close attention to the issue of personal income.

Some 68 percent of respondents expected price rises this year.(…)

China Daily




Is there a bubble, is there not? Economists will debate forever. Meanwhile, the Chinese government seems to take the threat seriously. In January, it first raised short-term interest rates a couple of times, then increased banks reserve requirement and, now, it is ordering banks to simply stop lending for a while.

(…) "Asset price rises bear more risks than consumer inflation". (…)

"If the price in a grocery store goes up, then demand comes downs; but if the housing price goes up, then actually demand might increase because people expect further increases," he said. "This is a much more dangerous phenomenon."

Economists warn of housing bubblesHousing prices in 70 major Chinese cities increased by 7.8 percent year-on-year in December, the fastest pace in 2009, according to official data. But many people complain that price rises are much higher than indicated in the index and have become unaffordable.(…)

"I can’t say there are (asset) bubbles at the moment," Timmer said. "But there’s a risk it is an area where you have to keep your eyes peeled."

Dong Yuping, senior economist at the Chinese Academy of Social Sciences, said: "Although house prices rose very fast in some big cities last year, it is hard to say if bubbles have already formed. There are few widely-agreed standards for us to decide whether there are bubbles or not."(…)

Timmer said the Chinese government has taken appropriate measures to keep the risk under control. "The first step is to recognize this is a potential issue and be willing to act, and the Chinese government does both."

The government has raised taxes on sales of second-hand homes and tightened land transfer rules, among others, to hold back surging prices.

(…) "However, in an overall environment of weak global demand, the government will be cautious very careful to avoid dampening overall activity in the sector."(…)

China Daily



For many economists and observers China is an accident waiting to happen. They argue that the Chinese government has created huge imbalances with policies favoring short-term economic measures such as infrastructure spending at the expense of longer-term, more lasting, policies aimed at boosting domestic consumption.

To the contrary, Chinese officials have planned it almost perfectly. In addition, Chinese personal savings rate is peaking and will be declining steadily in coming years, providing policymakers with another powerful tool to manage the economy exactly at the time when China’s export clients are entering an extended period of subdued growth.

image China’s economic stimulus has helped save the world in 2009. China may have accounted for as much as 2 percentage points of annualized growth in world output in Q2 2009 alone. In effect, more than 70% of China’s 2009 $585B stimulus package was  earmarked towards infrastructure expenditures. For many, this will only exacerbate imbalances,  eventually leading to economic catastrophe.

With proper perspective, however, we must admit that China’s economic performance during the last 15 years has been nothing but remarkable, particularly its achievement of strong and stable economic growth coupled with reasonably low and stable inflation rates.

There are two main reasons for this achievement. First, the Chinese government has a very strong and quick hand in most levers throughout the economy. The elephant has been able to turn on a dime. Secondly, policymakers have simply been outstanding in choosing the right policies at the right time. This cleverness, combined with the ability to rapidly and effectively implement decisions have made it possible for the government to pilot the country’s economy with great stewardship.


Chinese Savings

Chinese officials know that Chinese people are big savers. Contrary to the US, where the savings rate is near zero, Chinese workers save nearly 30% of their income and, surprisingly, this proportion has been growing even as income rose. It would therefore have been totally inappropriate and futile to base the 2009 stimulus efforts on policies aimed at throwing money to the Chinese consumer like the US and most Western countries have done.

The other thing that Chinese officials know is that this propensity to save, although rooted in confucianism, is actually highly pragmatic and can thus be changed. An IMF working paper on this matter sums up the reasons behind Chinese savings habits:

China’s low household consumption, or equivalently high saving, is often linked to precautionary motives. Government health, education, and pensions systems are underdeveloped, leaving individuals to bear a large share of the costs. As a result, households build up saving to cover these expenses, as well as to self-insure against uncertainty, especially regarding future health and pension needs.

The authors of the paper conclude that

government spending on health, but not on education, has an impact in reducing urban household saving. The impact, moreover, is large. A 1 yuan increase in government health spending was associated with a 2 yuan increase in household consumption.


Health vs Education

Yet, the Chinese government has strongly favored spending on education is recent years. While this may initially appear ill-advised, I see it as very clever planning.

Health is strongly correlated with economic well-being which, in turn, is powerfully influenced by education. Favoring education over health in the early years should meaningfully increase the health of the Chinese people in coming years. Not only will Chinese live in better material conditions, their higher education will help promote better eating and living habits.

Wensheng Peng, head of China research at Barclays Capital, makes the point:

Many Chinese residents heat their homes with gas canisters because there are no pipelines. Some have no sewerage or running water. Much else, beyond such basic needs, can be built. Take the high-speed railway now strung across the nation. Within a few years, it will connect 70-80 per cent of Chinese cities with a population over 500,000. In terms of travel times, the entire country will shrink by three-quarters. Shanghai and Beijing will be five hours apart. There will be potentially enormous productivity gains.

In its 11th five-year plan (2006-11), the Chinese government clearly set its goals:

With the implementation of the 11th Five-Year Plan, public services will be further improved. Public services for urban and rural residents, such as compulsory education, public health, social security, public culture, will be improved substantially both in quality and quantity. Average education for citizens will be increased to nine years. Urban citizens covered by basic pension will be increased to 233 million and the penetration rate of new rural cooperative medical care will be over 80%.

The Chinese government is on the ball: central government spending on health care is estimated to have increased 48% in 2009, almost twice the rate for spending on education. A 2009 World bank study agrees with Chinese policymakers’ decisions:

The reorientation of government spending toward the poorer rural areas and increased efficiency in the delivery of public health care will be key factors in improving health outcomes and impacting consumption behavior.

Confucius and Chinese Savings

During a 2004 trip to China, my many discussions with Chinese citizens, businessmen and government officials revealed another aspect of Chinese propensity to save: Chinese children have the obligation to take care of their elderly parents. This dates back to Confucius’ “xiào” which instructed adult children to take respectful care for their aged parents. In modern China, xiào is considered a cardinal virtue of a moral person and an integral part of what constitutes a good citizen

This Confucian tradition of seeing one’s taking good care of one’s aged parents as a moral duty has been not only reflected in the Chinese moral life but also in the practice of the Chinese laws from the beginning. For example, according to the Chinese Marriage Law, adult children’s moral duty of taking respectful care of their aged parents is defined as:

Children have an obligation to support and to assist their parents….. When children fail in such duty, parents who cannot work or have difficulty with their living have a right to demand alimony from their children.  (James Wang)

A young Chinese guide said at the time that she was saving some 40% of her income to prepare for this eventuality, and that this was a pretty common behavior among her generation.

As the Chinese government gradually improves and broadens the health care system and sets better safety nets for the poor and the elderly, it will lessen its citizens’ moral duties, thereby freeing savings towards consumption.

Life Insurance and Chinese Savings

Meanwhile, another significant change has been rapidly developing, looping together education, health, savings and consumption: life insurance and institutionalized savings.

Chinese working youth, being better educated and informed, increasingly rely on the rapidly growing life insurance industry to help them procure for their obligations towards elder parents using a much smaller part of their current income. Life insurance products also contribute to rural Chinese decision to move to the city:

The people who leave their villages also leave behind the traditional family roles that call for the family to stay together and the young to care for the aged. Once that tradition is broken, people who have left the village need to find new ways to fulfill their obligations, and insurance is one popular answer.

In all, the stage appears set for the next major leg in China’s economic expansion as domestic consumption will greatly benefit from the forthcoming inevitable decline in savings rates. This will provide Chinese authorities with another powerful tool to manage the economy if, as and when infrastructure spending  and, more importantly, export revenues slow down. China will thus further insulate itself from the vagaries of its trading partners.The next 2 charts from the IMF illustrate the point.
Charts from the IMF

Related post:




Demand for Chinese goods remains strong and rising and skilled workers are more scarce. Wages need to be adjusted upward.

(…) Many factories in the Pearl River Delta region in Guangdong province, a major economic powerhouse in South China, cannot find enough workers as their businesses recovered in the second half of last year.

"We found it hard to hire skilled workers in the last year, especially at the year’s end, as a growing number of workers returned to their homes earlier than before," a manager surnamed Chen with Guangdong Aihua Group.(…)

Sources with Guangdong foreign economic and trade authorities said Guangdong’s exports will see an annual increase of 10 percent this year, which means more workers are needed as orders increase.

"We have to upgrade technology and facilities to reduce the use of more workers. And we will increase salaries and welfares to attract skilled workers," Chen said.

Sources with Dongguan labor and social security authorities said that the job requirement rate in the city hit nearly 1:2 last month, which means one worker is offered two jobs.

"It is unusual since the rate used to be lower in previous years," Chen Weibiao, general manager of Dongguan Sanhe Human Resource Center, told China Daily.

Only about 1,000 workers were looking for jobs at a job fair last month in Zhongshan, another manufacturing city in Guangdong. At the fair, companies were offering about 5,000 jobs.(…)

The shortage of workers may drag small- and medium-sized enterprises into a "crisis" because the economic rebound has not been based on a solid foundation, said Liang Guiquan, a researcher with Guangdong provincial situation study and research center.

But Liang said that the worker shortage may help speed up industry upgrading and migrant worker utilization in the Pearl River Delta area.

"Companies, if they want to hire fewer workers, should do more in facilities and technology upgrading," Liang said.

Full China Daily article


China Created 11.02 Million New Jobs in 2009

China created 11.02 million new jobs in urban areas in 2009, topping the government goal of 9 million, the Ministry of Human Resources and Social Security said Friday.

Urban unemployment rate stood at 4.3 percent, with 9.21 million people being registered to be unemployed.

China’s State Council announced it is set to create 14 million more jobs next year, limiting the registered unemployment rate to 4.6 percent, reported.

More than 1 million people sat the civil servant entrance exam across the country last year in the hope of getting one of the coveted 15,000 posts available at more than 130 central government departments and agencies.

China Daily