China’s new GDP just as dodgy

From Capital Economics:

China’s statistics bureau last week announced changes to how its GDP figures are compiled. In principle, the shift should improve the precision of the data. In practice, the changes to historical real growth rates are small and questions about the accuracy of the official data loom as large as ever.

 The biggest change is that national GDP data will now be compiled for each quarter individually rather than on a year-to-date basis. Until now we and other analysts have derived quarterly growth rates from the year-to-date data, relying on the assumption that all of the increase in year-to-date output reported in a given quarter was due to activity in the quarter, rather than revisions to previous quarters. The new system is an improvement.

 For enthusiasts of national accounting this raises some issues. First, nominal GDP growth now looks even less volatile than it did before, when many sceptics already argued it was implausibly stable.

 Second, the lack of any substantial change to the real GDP growth estimates over the past four years when nominal growth rates have changed is striking. It implies that virtually all of the difference in nominal output that the statistics bureau has identified in individual quarters is the result of mismeasurement of price changes rather than real activity.

 More recently we identified what we believe to be a flaw in the methodology used to determine how the extent to which nominal growth is due to price changes rather than growth in real output. (See our Update, “Longstanding error still exaggerating GDP growth”, 15th July.)

 Specifically, the statistics bureau estimates price changes in industry using a measure (producer prices) that is heavily influenced by import prices. Our view is that, with global commodity prices falling sharply recently, this has caused price changes in the value-added portion of industrial output to be understated and real GDP growth to be overstated by 1~2 percentage points.