China’s Reliable Rise

As the global economy sputters, allegations that China’s economic data are unreliable have called into question its economic rise. But, if China’s official growth estimates are untrustworthy, why do world stock markets continue to respond to them?

NEW YORK – As the global economy sputters, allegations that China’s economic data are unreliable have called into question its economic rise. But, if China’s official growth estimates are untrustworthy, why do world stock markets continue to respond to them?

Citing unnamed “corporate executives in China and Western economists,” The New York Times alleged in June that “there is evidence that local and provincial officials are falsifying economic statistics to disguise the true depth of [China’s] troubles,” thereby inflating a variety of economic indicators by 1-2 percentage points. Similarly, in August 2009, the Financial Times reported that the tally of GDP estimates provided by China’s 31 provincial and municipal governments for the first half of that year was roughly 10% higher than the figure released by the National Bureau of Statistics.

Nevertheless, when the NBS reported in July that annual GDP growth in the second quarter was 7.6%, financial markets staged a relief rally. Indeed, even though the growth rate was in line with estimates of economists polled by Reuters (7.6%) and Bloomberg (7.7%), the S&P 500 gained more than 2% in response to the official data. This reaction contradicts prevailing economic theory, which predicts that financial markets will respond only tepidly to announcements of “unreliable” official data.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/2GOko2w;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.