Streetwise Professor

July 9, 2009

Seeing is not necessarily believing

Filed under: Economics,Energy,Financial crisis — The Professor @ 1:56 pm

One of my new favorite blogs, Zero Hedge, echoes my serious reservations about the reliability of bullish statistics releases from China.  The basic point is that (a) China had a heavily export oriented economy; (b) recent turbocharged Chinese growth was driven by exports; (c) world trade is in the dumper, and every other trade-dominated economy (e.g., Germany, Japan, S. Korea) is doing worse than other, less trade-dominated ones; and (d) it is very difficult to engender a major structural shift in an economy away from one driven by trade to one driven by domestic consumption.  The turnaround is attributed to a near immediate, miraculous reaction to a huge Chinese fiscal stimulus.  Maybe . . . but the evidence on the stimulative effects from other countries would suggest that such an outcome is highly unlikely.

Given that any optimism about world economic prospects is predicated on rosy views of the Chinese economic picture, if this data in fact exaggerates Chinese economic conditions, the implications for the strength and timing of any recovery in the West and Japan are not good.

There are some reasons to doubt Chinese data.  First, China is still an authoritarian state that exerts tremendous control over information.  Second, it quite anxious about domestic unrest–as recent riots make quite clear.  This could make it reluctant to disclose bad economic news.  Third, it does things like cut off releases of electricity data that might give the lie to other statistics.  (Of course, why not just lie about the electricity numbers if they are lying about something else?)

So, maybe the bullish news is true, maybe not.  I think that Zero Hedge’s skepticism is quite warranted however.  For if the data out of Beijing are correct, that would be the real Chinese miracle.

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  1. Why then is even China’s manufacturing PMI above 50 ?

    (Of course add in the services sector and its bold / reckless stimuli, and the high (relatively speaking) growth figures become explainable).

    Comment by Sublime Oblivion — July 9, 2009 @ 2:05 pm

  2. I don’t believe the data that the Chinese throw out. It looks like their banks are an accident waiting to happen:

    Sure their past decade of economic growth was spectacular, but, they are still a country with a huge number of rural poor. As I see it in order to stay afloat in this global recession which could last years they have to grow their domestic consumption which I don’t see how they can.

    Zero Hedge is a favorite new blog of mine too, Professor. It’s witty as well as informative.

    Comment by penny — July 9, 2009 @ 3:20 pm

  3. PS. @ SWP,

    I invite you to rejoin the Russophobe-Russophile discussion @

    Comment by Sublime Oblivion — July 10, 2009 @ 4:41 pm

  4. S/O–will do, time permitting. Travel (to Boston to discuss a paper on clearing at an NBER conference), work (yes, I do actually have to do stuff to earn money!), and–brace yourself for the irony–the necessity of helping out my Russian student visitors with some employment and visa woes have limited my ability to participate.

    FYI, I am also doing some research on the Soviet casualty stats you mentioned in an earlier comment (bought both the book by Kriovosheyev and another by Erickson and Dilks that has an extensive chapter on Soviet losses). Will respond more fully as time allows.


    The ProfessorComment by The Professor — July 10, 2009 @ 5:05 pm

  5. At least SWP is not the Wall Street Journal which slams Russia and kisses Chinese butt though Beijing is far more authoritarian.

    Comment by Vic — July 11, 2009 @ 12:30 am

  6. Vic, please, the WSJ isn’t alone in giving China a pass on their autocratic behavior. Most of the MSM does.

    Comment by penny — July 12, 2009 @ 1:19 pm

  7. penny,

    I’ve noticed that you incessantly criticize Russia, but rarely China. What’s up with that?

    Comment by Sublime Oblivion — July 12, 2009 @ 4:28 pm

  8. S.O., get real, SWP’s blog is focused on Russia not China. I have tons of criticism of China’s autocratic government. This isn’t the place for it.

    Comment by penny — July 12, 2009 @ 6:41 pm

  9. Maybe a “La Sinophobe” blog would be called racist, since Chinese aren’t Caucasian (though don’t call a Russian that term).

    As for the WSJ, their op-ed “Mahmoud’s Friends” about Ahmadenejad at the SCO in Yekaterinberg was classic example. No mention of the Chinese at all, just Russians and Turks in the Ahmadenejad fan club. Did the Turks get on their bad list that week, or what?

    Just sayin’…

    Comment by Vic — July 13, 2009 @ 11:14 am

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