China Data Debate Takes A New Turn (FXI, FXP, EEM, VWO, BAC)
Jim Trippon: In an interesting twist on the theme of how reliable China’s official economic data is, the issue has seen a couple of dueling analysts take up opposing views. In a recent Bloomberg article, Shen Jianguang of Mizuho was quoted as saying that the recent GDP numbers overstate China’s GDP, while Hong Kong economist Lu Ting of Bank of America (NYSE: BAC) argued that despite a failure to include certain hard to ascertain industrial production data, GDP data was largely accurate or perhaps even understated.
What’s new here is the defense of China’s official data by an analyst, many of whom have usually had a more skeptical view, or at least have allowed for the possibility that China’s government data wasn’t always entirely accurate. The analysts’ skepticism has often been seized upon by China bears who have argued more extremely that essentially none of the data is truthful and that none of the investment information is trustworthy. The argument about the data has been frequently used to bolster the view that China is, in the eyes of extreme critics, therefore not a good place to invest in. The interesting contention by Lu Ting, however, is that the slowing GDP growth may not be accounting for all pockets of industrial growth so growth is under reported. China’s GDP figure, which according China’s National Bureau of Statistics fell off to 7.6 percent in the second quarter from an annual growth rate of 8.1 percent in the previous quarter, has been a key figure in tracking the slowing economy.
China Industrial Production
A larger context for the economic data reported by governments is that there has always been a measure of skepticism about it. This has extended as well to a lesser extent to the long-developed nations in the west, where GDP data and other important economic numbers, while they may not be overtly disputed by most critics, are often seen as being given favorable wrinkles. In some US economic data, over the course of decades, the methodologies and criteria have been changed, at least slightly. While critics of the absolute accuracy of the measure of economic numbers have pointed this out, few suggest anything conspiratorial or deliberate attempts at misleading, most instead attribute this simply to the adoption of different statistical methods for measuring such data. There are, however, suggestions that some or much data is unmeasured or unmeasurable, in any system. There are also legitimate criticisms of what constitutes the measurable data. Think of the sometimes disputed employment numbers, for example, in US data, where some don’t accept that the rendering of unemployment figures accurately accounts for those who’ve permanently quit looking for work, who’ve in effect fallen out of the counting system
The Quest For Reliability
Lu Ting was quoted in the same Bloomberg piece as maintaining that the China economic numbers aren’t “deliberately cooked.” Sheng Layiun, spokesperson for the National Bureau of Statistics, of course agrees. The Chinese official claimed that the critics have it wrong, that the Chinese economic slowdown “is stabilizing.” And here is where the heart of the matter is. To the extent that the data is believable or reliable, investors rely on that to help shape their decisions on whether to invest or what to invest in.
One of the problems of the China critics with regard to economic data as well as other related issues such as equities is that the criticisms are often too broad and sweeping, even irresponsible. If, for example, one company has been identified as having poor accounting practices, it doesn’t take long at all for that to be extended into an argument that all Chinese stocks have poor accounting practices, a view that is certainly without evidence if not any factual basis. Yet those assertions have appeared from China critics, and are such sweeping indictments as to be immediately damaging to the prospects of equities that have acceptable accounting practices. For a company to prove its accounting is accurate in the face of such broad generalizations is a difficult thing, just as it is difficult for Beijing to prove that its GDP data is accurate. At least analyst Chang Jian of Barclays in Hong Kong, who said that the official Chinese GDP was overstated, pegged growth at 7 percent to 7.3 percent last quarter. His criticism may or may not be accurate, but is much more legitimate than vaguely saying the data is completely unreliable.
China GDP Annual Growth Rate
So how should investors read all the byplay on GDP data and government statistics. It’s good for any investor to be a bit skeptical, to examine the numbers, to look under the hood, to dig around and read other data as well as any important non-statistical views from people with eyes on the ground. This goes for any investing, whether it’s in the US or China. Try to piece together the most accurate picture you can for countries, economies, and of course companies you’re considering investing in. invest in. That is simply an investor’s task, as it’s our money we’re watching. Yet GDP debate or not, investors in China have made money over the years, and should be able to make money in the future.
Related: Vanguard Emerging Markets ETF (NYSEARCA:VWO), ProShares Ultra Short FTSE/Xinhua China 25 ETF (NYSEARCA:FXP), iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI), iShares MSCI Emerging Markets Index (NYSEARCA:EEM).
Jim Trippon, founder of Trippon Financial Media, Inc., is a maverick that has dedicated his investment career to helping investors make smarter financial and stock selection decisions. Trippon, an internationally recognized expert on global and value investing, has a deep passion for finding hidden value in global equity markets. Trippon started his career as a financial statement examiner with Price Waterhouse which allows him to dissect a public company’s financial picture and better identify hidden gems. Trippon’s savvy approach to investing and personal finance makes him in high demand by major media who seek his unique perspective on stocks and global economics. He has been featured in top publications both in the US and abroad including Bloomberg, Investor’s Business Daily, The New York Times, The International Herald Tribune, Stock Futures and Options Magazine, The Bull and Bear Financial Report and he regularly appears on broadcast television including as an on air contributor to CNBC, CNN, Fox Business, and Fox News.
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