Number cruncher

Understanding China’s Economic Indicators: Translating the Data Into Investment Opportunities

BFT Press, 2011

US$37.39

Reading through any Chinese investment prospectus, one is inevitably treated to at least 15 pages of macroeconomic data detailing astonishing historical growth, graphs with upward-pointing arrows, and myriad big-picture theses for selling the farm and buying China.

But those claims to economic fame and fortune can be just as quickly dispelled by China bears, who argue that these economic figures are manipulated by politically-motivated number-crunching goons. Statisticians are simply painting a pretty picture of consistently improving lives among the rosy-cheeked Chinese laobaixing, they say.

At one point in history, those accusations would undoubtedly have been true. During the Great Leap Forward, for example, officials engaged in rampant falsification of data, reporting grain outputs that were 10 times the optimal yields. But the country has changed dramatically, and, as Wall Street Journal correspondent Thomas Orlik’s “Understanding China’s Economic Indicators – Translating the Data into Investment Opportunities” illustrates, the truth behind the numbers is now far more nuanced.

The proof is in the pudding

Organized as an instruction manual for any would-be China economy wonk, Orlik’s book sorts one-by-one through a laundry list of indicators and publicly available data. Around 50 indicators are covered; biggies such as GDP, trade data, the Consumer Price Index, government revenues, industrial value added, and money supply are of course discussed in detail. However, the book also touches upon less visible but potentially useful tidbits, like the Market News International China Business Survey.

Readers learn where and when data is published, the significance of the information in context of the broader economy and financial markets, and what is known – not always comprehensive – about the data compilation methodology. There is no shortage of Orlik’s own well-reasoned analysis, supported with plenty of examples and illustrative charts.

In the process of presenting the structure of the data, broader exposition on the Chinese economy flows naturally and keeps the text engaging. The author (thankfully) is not a statistician, and aside from the occasional flat joke, he does an excellent job of maintaining a lively tone in what could have been an otherwise dense 224 pages.

An inexact science

Orlik is clear about where the data is flawed and to what extent one should exercise caution. In his discussion of labor markets, he quips, “The first point to understand about China’s unemployment data is that it is wrong.” By and large, however, the story told is that of an increasingly sophisticated and transparent National Bureau of Statistics attempting to pin down and measure the slippery eel that is the Chinese economy. After all, political pressure, hot money, shadow banking, tax evasion, cottage industry, and a massive migrant labor force are messy complicating factors for anyone calculating to the decimal point.

In some areas – for example, real estate prices – the author concludes that the private sector is doing a better job in policing the data than the appointed ministry. In others, the combined efforts of roughly 80,000 NBS statisticians appear to be tallying in good faith, at least to the extent that they are able. In any case, the reader is left in a much better position to judge the known unknowns of each indicator and draw his or her own conclusions.

For better or worse, “Understanding China’s Economic Indicators” focuses more on Orlik’s area of expertise – drivers in the fixed-income market. There is a detailed and excellent 40 pages of analysis on the external sector where anyone interested in FX reserves should get their fill. On the other hand, retail sales are covered in a mere five pages. That is an unfortunate oversight, especially when one considers the book’s subtitle. Retail sales are an often misused data point, critical to what could be the investment thesis of the decade: the Chinese consumer.

With Chinese statistics bandied about in media headlines more every day, there was a forehead-slappingly obvious need for this book. Orlik has risen to the occasion with a practical and accessible reference guide that should be on the desk of anyone interested in understanding the Chinese economy.

Taylor Price