Don’t worry, it’s normal for China’s GDP to appear a little weird | FT Alphaville

Don’t worry, it’s normal for China’s GDP to appear a little weird

Still confused by China’s better than expected GDP numbers? (Especially given stories like this, and this, and this?)

You’re not the only ones.

Standard Chartered’s Stephen Green and Lan Shen, however, offer one explanation. You can’t necessarily trust the numbers.

As they noted on Tuesday (our emphasis):

At times of stress, we know that China’s GDP numbers can appear a little weird. In late 2008, we recommended a number of growth proxies to watch in case the GDP numbers became less reliable, including electricity production, freight traffic, and production of key industrial goods.

All of these proxies suggested a deeper downturn in late 2008 and early 2009 than the official GDP numbers showed. In this note, we check in on those proxies, and they suggest that the economy is indeed continuing to expand, albeit at a more moderate pace than in 2011.

So, according to Standard Chartered’s proxy measures, this time round we can trust the numbers. The economy is undoubtedly growing — though not necessarily at the rate suggested by Tuesday’s release.

And that’s because the picture may have been obscured by developments in China’s  property market. As Green and Shen note, things there have recently definitely turned for the worse:

The correction has begun. Residential housing investment hit a 30-month low of 10.8% y/y in December (19.6% y/y in Q4), compared to 35.7% in the first three quarters of 2011. Floor space under construction fell 25% y/y in December (Chart 8 shows the 3-month moving average, which softens the decline); this suggests that investment in this sector has much further to contract. Sales volumes declined substantially in Q4. Residential floor space sold fell 8.4% y/y in December (following average growth of 12.9% in Q3-2011). Completed residential floor space is still growing, up 9.3% y/y in December. This is resulting in rising apartment inventories.

Expectations of price rises in Tier 1-3 cities appear to be reversing, and developers have been cutting prices since October in an attempt to shift inventory. Prices will likely continue to fall. In Q2-2012, we expect the central government to begin signalling a policy shift to stabilise the sector. At the March National People’s Congress meetings, local officials will be lobbying aggressively for relief. Once prices have come down, we expect Beijing to start gradually easing some of the property market restrictions imposed in the past year in order to encourage first-time buyers into the market. This sector, though, remains the biggest risk to China’s economy.

And with that in mind, please note the divergence in this chart:

More worrying than weird, we would say.

Related links:
Not liking those odds of a Chinese hard landing
– FT Alphaville
Chinese property: a lofty ceiling – FT