China's New Statistical Conundrum

Many investors are betting on the continuation of China's remarkable economic growth despite the near complete decimation of the emerging economy's export-oriented development frenzy. Early signs show that the Chinese government will actually retain its extraordinarily high annual growth rate this year, defying cynics who doubted the resilience of the export-oriented industrialization paradigm--- except for one small problem. The economics statistics coming from the Chinese Communist Party don't exactly add- up. The lack of reliable economic statistics coming from China only serve to further complicate efforts at avoiding deeper crises in the real economy.

According to a dispatch in Foreign Policy magazine, local-level Chinese government officials are fudging data on everything from economic growth, unemployment, to retail sales. The reason? Local Chinese officials are under intense scrutiny to meet routine targets and therefore have powerful incentives to cut corners and/or manipulate the harsh realities on the ground to save face. Jordan Calinoff writes for example that,

A look at GDP growth also raises serious questions. China's economy grew at an annualized 6.1 percent rate in the first quarter, and 7.9 percent in the second. Yet electricity usage, a key indicator in industrial growth and a harder metric to manipulate, declined 2.2 percent in the first six months of the year. How could an economy largely dependent on manufacturing grow while its industrial sector shrank? It couldn't; the numbers don't add up.

If China's main export markets in the 'triad' US, Europe, and Japan fail to recover as expected, the nation will undoubtedly face greater unemployment and social unrest among the working- class. The overly optimistic economic forecasts coming from China may obscure the reality that a model champion of export-led industrialization may soon see its reign come to an end; with bang, rather than a whimper.