beyondbrics

Suspicions about the reliability of Chinese statistics have a good pedigree. Li Keqiang, the man who is likely to be China’s next head of government, once described the country’s GDP data as “man-made” and “for reference only”.

And yet for all the doubts, the numbers that Beijing publishes, from real-estate investment to money supply, have acquired an ever-growing ability to move global markets.

It is into this breach between the shoddy reputation and the undeniable power of Chinese data that Tom Orlik has stepped with a new book, Understanding China’s Economic Indicators.*

Orlik has little time for the reflexive distrust of Chinese numbers that is often heard from critics. In an overview of the history of China’s data production, he shows just how far the government’s statisticians have progressed since the “rampant falsification” during Mao’s rule.

The biggest problem now is “not the crude controlling hand of the Politburo dictating the GDP figure”, he writes. Political sensitivity surrounds some numbers, but the biggest challenges are more technical: “the difficulty of measuring a rapidly changing economy, imperfect surveying methods, a recalcitrant sample set”.

Having made the case for the increasing reliability of Chinese data, Orlik then delves into the major indicators, producing a book that is equal parts glossary, history and China Economics 101. For each indicator, he explains in considerable detail why it is important, how it is calculated, how to interpret it and how it might impact the market.

Except for those with an extreme wonkish bent, a book about the collection and significance of statistics has the potential to be a bit of a snooze. To Orlik’s credit, he has injected many of the data points with an erudition and even excitement that should keep readers’ attention, if not have them hanging on every word.

In the section on gross domestic product, he describes a controversy in 1998 when leading academics accused the government of grossly inflating growth figures during the Asian Financial Crisis. Looking at problems in wage data, he mentions a joke that circulated online in 2009 about how the national statistics bureau had given people pay raises but forgotten to tell their bosses. In the chapter on financial indicators, he devotes several pages to examining oft-neglected numbers from lending maturities to positions for foreign exchange purchases that have important stories to tell.

Perhaps inevitably, there are some data points that slipped through the cracks. Just a few weeks ago, we told you about China’s GDP deflator. It seemed a perfect candidate for  Orlik to dissect: an opaque number full of confusion. Alas, he had only a passing comment about it.

Similarly, with the statistics apparatus struggling to keep pace with China’s economy, it is also inevitable that important indicators will emerge that Orlik did not cover. A hot topic this year has been the central bank’s estimate of ‘total social financing’, but it appears to have come too late to be included in the book. In some ways, this is good for Orlik; he will have plenty of material to regularly write new, up-to-date editions.

A more serious defect is the subtitle of the book: “translating the data into investment opportunities”. That might have been seen as a clever way of selling more copies, but it is hard to imagine anyone getting rich by reading it. In the section on PMIs, equity investors are advised that upside or downside surprises can produce sharp reactions in the market – no great secrets unlocked there.

Thankfully, Understanding China’s Economic Indicators is not really about investment strategies. For the meat of the book – the provenance and the interpretation of Chinese data – Orlik’s analysis is thorough, surprisingly gripping and often forensic.

* Full disclosure: Understanding China’s Economic Indicators is published by the FT Press, but FT Press had nothing to do with the writing of this review. Additionally, Tom Orlik is a friend but is also a fierce competitor as a columnist for the Wall Street Journal. So, on balance, the writer should have as much interest in praising him as in besmirching his reputation.