When it comes to the reliability of official Chinese statistics, it is not a secret that it is politics that guides the data and not – as one might expect – the other way around. The usefulness of official statistics has been discussed for years now as they are likely to mask considerable cyclical variation. Some provinces and cities have even admitted to manipulating statistical figures in order to please officials in central government and unlock further investment spending.
Relying on Chinese statistics is, therefore, a risky way to assess the strength of the economy. A much better method is to look at the performance of some of its most important trading partners. While the Chinese economy has embarked on a path of transformation, for the time being, it is still an economy that imports large amounts of natural resources and semi-manufactures to fuel its manufacturing hubs scattered around the country. China is a central trading hub in Asia and due to its sheer size, it is the most important trading partner for a large number of countries in the region. Luckily, some of these countries publish much more reliable statistics.
The below graph looks at exports to China from Australia, South Korea, Singapore and Japan – countries that have close trading relations with the People’s Republic. The data are indexed so that scales are comparable. When we looked at the data at the beginning of the year, the picture was extremely bleak. Exports by all four countries to China had fallen, in the case of Singapore and Japan by as much as 30% compared to the previous month, leaving them significantly below the levels seen in the same month of 2018. Even Australia, whose raw material exports to China have performed relatively well over 2018, saw a monthly decline of 15%. These data coincided with other news coming out of China showing that growth slowed as the country struggled with the twin effects of the trade war with the US and its efforts to deleverage its financial system.
More recent months have shown that luckily, our worst fears have not come to pass. This recent uptick in Chinese economic activity is largely thanks to a number of stimulus measures implemented by the Chinese government, which have made themselves felt over the first quarter of 2019. According to the latest trade statistics, Australian and Japanese exports currently stand above the January 2018 levels, and the annual deficits for Singaporean and Korean exports are shrinking.
China’s politburo has used a number of levers to try and avoid a deeper slump for the economy, including a fiscal stimulus of US$300 bn consisting of infrastructure spending and cuts to income and corporation tax. Moreover, the sharp increase in total social financing at the beginning of the year, which is a broad measure of credit and liquidity in the economy and includes lending activity in the shadow banking sector, also showed that China is still able to control credit flows within the economy.
While the risk of a Chinese slowdown is still very much a threat to global growth in 2019, the most recent export statistics from its main trading partners as well as the efforts by the Chinese government to prop up the economy are encouraging news. The stimulus, however, also implies that the country will further increase its already precariously high debt levels, abandoning its path of deleveraging. A Chinese day of reckoning might still be ahead of us.
Monthly merchandise exports of selected countries to China, indexed January 2018 = 100
Contact: Kay Neufeld – firstname.lastname@example.org – 020 7324 2841.