For a country the size, state of development and complexity of China, the speed with which they produce certain statistics, such as quarterly gross domestic product (GDP) growth, is surprising. In fact, some analysts have gone so far as to question the fundamental accuracy of the numbers themselves.
There are a number of reasons for questioning the integrity of the data. Some claim that the highly top-down political system and China's once-in-a-decade leadership change may have increased pressure on Communist Party officials to report strong numbers. China’s legacy of a state-controlled economy may be poorly set up to accurately gauge and measure the burgeoning and evolving consumer demand and importantly, the service sector where output is less about measurable goods. Economists worry that the numbers fail to reflect the new economic reality, or rather that they reflect political imperatives. However, China’s National Bureau of Statistics does not make it easy for independent outsiders to cross-check its work.
So, how do we, as fund managers, get around this issue? We look at the trends in macro data but rather than relying on ‘official’ government statistics, we prefer to use lower level data, such as power consumption growth, refinery throughput and manufacturing purchasing managers’ index (PMI) surveys to assess the strength of economic growth. Meanwhile, across all emerging markets, auto sales provide a useful barometer of consumer demand.
Figure 1: China auto market monthly sales overview
By combining several alternative data sources and importantly, continuously meeting many companies, we are able to form a composite picture of the overall economy.