How China faked its growth numbers

Great work from Zero Hedge today:

As far back as 2013, China’s macro-economic data has been ‘questionably’ smoothed at best, and outright fake at worst.

Whether it is trade data (“never been faker” than in 2016) or aggregate production (2018’s massive GDP distortions), as economist Nouriel Roubini once asserted, China just makes its numbers up.

This month was no exception…

Following China GDP’s dramatic slowing to just 6.2% YoY – the slowest since record began – there was a delightful surprise to appease those who are wondering whether record credit injections and more easing measures than during the financial crisis had any effect at al

China retail sales and industrial production rebounded handsomely with the former spiking 9.8% YoY – the most since March 2018.

There’s just one thing though – the entire surge in retail sales (and industrial production) seems to have been triggered by an almost unprecedented sudden surge in auto sales to large (state-owned) enterprises…

A 17.2% YoY explosion in sales to SEOs (up from just 2.1% in May)  – the most since August 2011 – is almost too good to be believed (ok forget almost, it is too good to believe and seems like pure top-down manipulation of the data – whether sales were effectuated or not), echoing the kind of forced buying rush that occurred in 2009.

And that did not end well.

However, absent considerably more liquidity, forced credit injections, or a miracle, Auto sales are about to hit a wall as China’s credit impulse begins to slow…

Finally, no matter what China does to ‘flatter’ its data and project economic might in the face of Trump tariffs and a collapsing ponzi scheme, the single stat that is hardest to fake (and easiest to see reality) is the dramatic decline in the marginal productivity of debt.As John Rubino recently noted, China, like the US, is getting progressively less bang for each newly-borrowed buck. There’s a point at which new borrowing doesn’t just product less wealth but actually destroys it. The US and China are heading that way fast, while Europe might be there already.

As Evans-Pritchard, notes, the result is “maximum vulnerability.”

I told you not believe yesterday’s data. There’s more from Westpac on where the growth is really coming from. As noted yesterday, total social financing is grinding higher:

And it is all going into empty apartments not infrastructure:

But not via traditional private sector channels of shadow banking:


But simply force fed by SOEs:

And we know where that leads, via Nikkei:

Prof. Gan’s striking estimate that 65 million urban residences — or 21.4% of housing — stand unoccupied was published in a report in December. The proportion is up from 18.4% in 2011, driven by a rise of vacancies in second- and third-tier cities, where demand is relatively weaker and speculative activities are more prevalent than in Shanghai, Shenzhen, Guangzhou and Beijing.

Prof. Gan warns of potential financial risk from the rising number of vacant houses. Of the 22.9 trillion yuan ($3.4 trillion) of outstanding mortgage debt held by Chinese people as of the end of 2017, 47.1% of that is tied up in residences that now stand empty.

In other words, almost half the bank loans are tied to housing assets that are neither being lived in nor churning out rental income. According to the stress test conducted by the professor, a 5% fall in housing prices would take away 7.8% of the actual asset value of occupied houses, but 12.2% for unoccupied houses. “If housing prices keep on falling, the damage to unoccupied residences accelerates even more than the occupied [ones],” Prof. Gan said in the report.

In other words, China is doing the exact opposite of what it needs to do to lift itself beyond the middle income trap. You know, “rebalancing” and all of that. It is instead quadrupling down on building apartments to nowhere driven by centrally planned state owned enterprises that are, over time, bogging its economy’s productive capacity into a debt quagmire from which it will never emerge.

Indeed, the capital misallocation and income destruction at the heart of China’s empty apartments boom is analogous to the military spending waste that destroyed the centrally planned Soviet economy in the 1980s. It is therefore amusing to read the following from the CPC foghorn today:

By exaggerating China’s GDP growth slow-down, the US has sent a message, signaling that Washington is anxious about the ongoing trade war. They have paid close attention to each and every single change China has experienced, hoping to find long-awaited signs of crippling behavior.

Driven by such anxieties while strategizing Trump’s 2020 re-election campaign, the White House administration has repeatedly overblown China’s trade war losses, fabricating evidence and “facts” to sway public opinion.

In recent years, China’s economy has experienced soft fluctuations and reduced double-digit growth, characteristics that were already in place before the US-launched trade war. The changes today are a natural reaction to national economic restructuring and continued upgrades. The trade war is merely an extra variable among normal circumstances. Even though the trade conflict has stretched for over one year, China’s GDP growth has remained above 6 percent, a figure most major world economies crave. The country’s economic performance has continued on within a reasonable range.

Such facts demonstrate that China’s economy will remain firm and resilient during attrition warfare.

The CPC may be able to force grow empty apartments for a while yet but by doing so it sure ain’t winning any economic war in the long run.

David Llewellyn-Smith
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  1. This has been known for years. China’s figures have been ever more out of line with reality since the immediate post GFC reflation bounce back. So much so Michael Pettis estimated that China’s GDP growth was 3 percent or less one or two years ago. And it’s not as if the Chinese authorities haven’t understood the problem. Premier Wen warned back in 2007 that China’s economy was badly out of balance, but then came the GFC and all plans to rebalance the Chinese economy went out the window as they manned the pump on infrastructure and buildings, which has entrenched imbalances, the imbalances that powered the second wind of the Oz mining boom, you know, the one that pushed the AUD sky high so manufacturing “could make way for” according to the geniuses at the RBA. Such a cleva country we are. Of course, “nobody could have seen this coming”. Straya, you’re standing in it.

    • DominicMEMBER

      Smart fellas the Chinese. GDP never goes below 6%. If you think our guys are good …

  2. Zerohedge should look at “How the RBA faked its inflation numbers” or “How the ABS faked its unemployment rate” next.

  3. China is a strong regional power that could defend itself if it was attacked. The idea that it is going to be the preeminent nation state of the 21st century is quite humorous though. They could’ve increased their power gradually over time, but dear old Pres Xi decided to declare himself emperor and bring China to world leadership a bit too soon. The rest of the world has noticed, and as nobody wants to be subjugated by their squalid tyranny, the rest of the world is pushing back.

    You may not like Trump, but he’s doing the needful with China.

    Prosperity generally comes through cooperation though, and war is definitely bad for business. I see Russia sitting on the sidelines and profiting from the US (and everybody else) versus China conflict. Russia has human and natural resources out the wazoo, and leaders who act in the interests of Russia, rather than foreigners, as ours tend to do. They’re the ones who I see increasing in power through the rest of the century.

    As for Western Europe? Well, England, France, Germany, Belgium, Sweden, Spain…they’re all being taken over by low quality invaders immigrants from third world sh1tholes with the encouragement of the virtue signalling traitors and globalists who run those countries, and so they are becoming more and more irrelevant. If there’s any hope over there it’s that Salvini and his mates might save Italy, and that’s a sentence I never would’ve ever thought I’d write.

    • DominicMEMBER

      It’s funny you should mention Russia. Putin, love him or hate him, is more Statesman-like and ‘measured’ in his demeanour than any of the clowns in the other industrialised nations. In addition, he appears to be a relatively sharp cookie if ever you’ve followed an interview or presentation of his. He gets it. I really don’t believe for one minute he has imperialist ambitions but he would defend Russia’s interests to the death. Of that there is no doubt.

      +100 for the cooperation / prosperity link. War is a diabolical business both financially and in human misery. The only prosperity to arise from war is among a small clique of arms manufacturers/dealers and civil contractors hired to rebuild the the place that’s been flattened. A waste, all ends up.

  4. steflukeMEMBER

    So, what do you own when the world has maxxed out on debt, and it doesn’t work anymore?

  5. “In recent years, China’s economy has experienced soft fluctuations and reduced double-digit growth, characteristics that were already in place before the US-launched trade war. ”

    Didn’t expect them to admit that, thought they’d blame USA & use it to justify military action.

      • btw they can design build high speed trains, jet fighters, satelites etc. I’m sure they can handle it so long as Volvo’s supervisors are careful with the suppliers. That is where the headaches will be.

  6. mikef179MEMBER

    I’ve been thinking for a few years now that the analogy to the old Soviet Union is quite apt. If you are stifling information to the degree that China does, with a Great Firewall, it’s not because things are hunky dory.

    As far as capital misallocation goes, Australia doesn’t seem like it’s far behind.