Barclay Capital’s Yiping Huang wrote a report last month, saying that he thinks that Chinese consumption is being under reported, so the contribution of consumption towards the overall GDP has been understated.
As always, there is skepticism surrounding the quality of Chinese statistics. With respect to the consumption data, Yiping Huang argues that the weighted average of retail sales growth and service sales growth could be a better proxy for consumption growth in the GDP account, and those growth numbers would be greater than the growth of consumption within the GDP account. As a result, the share of consumption (private and public sector included) of GDP has been under-reported, while investment has been overstated:
Using retail sales as the proxy, according to Huang, would gives the highest share of consumption (see above), while a weighted average of retails sales and service sales growth would give as somewhat lower, yet rebounding share of consumption.
If we simplify here to use retail sales as a proxy for consumption in the GDP account (which gives the biggest benefit to those who think rebalancing has happened), the problem I have in mind is just how relatively slow it is compared with urban fixed asset investment (FAI) growth.
The official monthly FAI growth numbers are accumulative, that means the year-on-year growth reported compares the year-to-date investment for the current year versus the year-to-the-same-month investment for the last year. For the sake of comparability, I subtracted the year-to-date data for the current month by the year-to-the-previous-month data to figure out the year-on-year data for the current month only. All growth numbers here are in nominal terms:
As you can see, retail sales growth numbers have only been higher than fixed-asset investment growth numbers in nominal terms in two instances only. If these are taken as proxies for the consumption and investment components for the overall GDP, it is hard to see how rebalancing has begun. Of course, that’s a big ‘if’. Perhaps the monthly FAI numbers are just as not reliable, and it is measuring something which is thousand miles away from the investment number in GDP (of course they are different, we all know that, the problem is just how different).
On a positive note (as far as rebalancing is concerned), the FAI growth for December 2011 has collapsed. On a negative note (as far as overall economic growth is concerned), the FAI growth for December 2011 has collapsed.