Beneath China’s stable headline numbers, there is a growing belief that the real picture is much worse
By Mike Bird and Lucy Craymer Sept. 8, 2019 12:29 pm ET
In the second quarter of this year, official Chinese data showed economic growth of 6.2%, close to Beijing’s target and within a percentage point of what it has reported every quarter for the past 4½ years.
A few months earlier, satellites monitoring Chinese industrial hubs suggested parts of the world’s largest trading economy were contracting. An index of Chinese industrial production created by a multinational manufacturer was pointing to lower growth than official figures. And a web-search index used to gauge how many workers return to their jobs after the Lunar New Year holidays was down sharply from a year earlier.
Beneath China’s stable headline economic numbers, there is a growing belief among economists, companies and investors around the world that the real picture is worse than the official data. That has analysts and researchers crunching an array of alternative data—from energy consumption to photos taken from space—for a more accurate reading.
Their conclusion: China’s economy isn’t tanking, but it is almost certainly weaker than advertised. Some economists who have dissected China’s GDP numbers say more accurate figures could be up to 3 percentage points lower, based on their analysis of corporate profits, tax revenue, rail freight, property sales and other measures of activity that they believe are harder for the government to fudge.
China, whose GDP topped $13 trillion last year, is still growing, and the alternative data points to that. It indicates the deceleration is happening in areas such as manufacturing. In many cases, alternative indicators have previewed the path of official data and show the depth of the challenges Chinese authorities face.
“Manufacturing is being hit really hard,” said Leland Miller, chief executive officer of China Beige Book, which measures China’s economic strength based on thousands of survey responses from mainland companies. “Investment is down, hiring took a serious hit, a huge hit to new orders.”
China on Friday released billions of dollars to banks in an effort to revive business sentiment as the U.S.-China trade battle continues. The People’s Bank of China reduced the amount of money commercial banks have to hold in reserve, enabling lenders to finance projects.
Much of the data “is telling us nothing good about the China economy,” said Eric Pratt, head of global marketing at AVX Corp. , a maker of electronic components based in Fountain Inn, S.C., which has two Chinese factories producing parts for cars and mobile phones. Mr. Pratt said over the past year, as alternative indicators and forecasts pointed to more weakness, his company cut some jobs and slowed production.
Over the past decade, China’s growth has made up between a quarter and a third of the world’s economic expansion. The country’s size and interconnectedness around the globe now means small changes in output impact the performance of all major economies, including the U.S. and trade-oriented ones such as Germany and Japan.
Since the escalation of the U.S.-China trade conflict, suspicion that China may be massaging its official data to paint a picture of broad economic health has become a challenge for Washington. U.S. trade negotiators have been seizing on any signs of weakness in their attempt to squeeze more concessions from Beijing.