The Chinese Deception: GDP numbers don't add up

For the majority of this year I have been warning that the numbers being offered by the Chinese are not credible (as in my blog post "The Great Scam of China") and anyone who believes that their economy has expanded by 8% annually, when every other trading block has seen massive contractions or virtually no growth, are probably the same persons who told you to invest in dot-com companies in the late 1990's, lauded Enron, and told you that it was impossible for the housing market to precipitate a recession. While the image of the Chinese economy from an external perspective may seem robust and healthy compared to the stagnant wasteland that is the American and Eastern European economies, claims made by and about China have always been more fanciful than empirical.

Beijing's state economists announced recently that gross domestic product grew by 8.9% in the third quarter of 2009 compared with the corresponding period last year and that growth for the first three quarters was up 7.7%. A majority of international analysts still blather endlessly about the Chinese miracle and how we'll all be kowtowing to Beijing's dictatorial whims in the near future. For example, one news article predicted that, "India, China, Russia, and Brazil will become the world's richest nations over the next 40 years." Have you ever been to any of these countries? They're vast slums run by petty dunces, dictators, and pick-pockets, who reign over societies that are enmeshed in colossal corruption, incompetence, and in the cases of China and India, massive racial and ethnic strife that is only moderated by the brute fist of the federal state. CNN's Fareed Zakaria, who in my opinion has always been high in rhetoric but sparse in convincing data, declared that China was the real winner of the recession, by investing in infrastructure and technology.

However, the gig is up and more than a few peripheral critics are now being heard. Andy Xie, an independent economist who called both the US based housing collapse and global recession early in 2007, was recently quoted in the Economist magazine describing the entire Chinese stock market as a “giant Ponzi scheme.” How do you say Madoff in Mandarin? Gordon Chang, a Forbes magazine columnist, recently dismissed China's numbers. He asserts

The economy, for example, is still dependent on exports: Before the massive government spending, about 38% of GDP was attributable to sales abroad. Yet exports tumbled 23.0% in July, 23.4% in August and 15.2% in September. Another important indication of slowing activity was the third-quarter drop in imports. They fell 14.9% in the first month of the quarter, 17.0% in the second and 3.5% in the last.

Furthermore, he asks, "How can a country have robust consumer sales, nagging deflation and rapid monetary expansion all at the same time?" He concludes,

The answer is that Beijing's statisticians have gone back to their old tactic of making up figures to support the Politburo's predictions. The Chinese economy is probably growing due to state-led investment, but it cannot be doing so at the rates claimed. Wen Jiabao's stimulus plan is, above all, grossly inefficient. For all the money he is pouring into the economy, the country is getting a small return in economic output. That's why Premier Wen, despite the high growth numbers he's been reporting, consistently refuses to end his stimulus program. If his numbers were real, he would be worried about overheating. But he's apparently not.

Even the Chinese people themselves, who are best situated to evaluate the economic data, deride the statements as sheer propaganda and farce. An article in BusinessWeek summarizes the current opinion:

The People's Daily, the Communist Party mouthpiece, reported in July that the public reacted with "banter and sarcasm" to NBS figures showing average urban wages in China rose 13% in the first half of 2009. It quoted an online poll showing 88% of respondents doubted the official data and many thought wages had actually fallen.

There used to be an old saying around my college dorm, "There are two things that smell like fish; one of them is fish." At this juncture, I'd add the Chinese economic statistics as a malodorous and strong second.