Here’s a chart showing China’s GDP growth rate in real and (un)real terms from Sean Corrigan at Diapason Commodities:
As Corrigan observes, while real GDP rose from a worthy 7.9 per cent year-on-year growth rate in June to a commendable 10.7 per cent by year end — the nominal rate shot up from an anaemic 4.0 per cent to a shocking 26.9 per cent in the same period.
In Corrigan’s words, that implies:
…a fourth quarter (NSA) climb of no less than 417 per cent on an American-style, annualised basis!
But nobody cares about nominal GDP, right? In fact, that’s the whole point of the deflator, no?
Except look at the chart again. The degree at which the deflator has outpaced CPI in the quarter seems almost unprecedented (in the period covered).
Unlike CPI, which reflects the change in price of a fixed basket of goods, the deflator reflects prices of goods that can be substituted in and out as statisticians see fit.
In which case could ‘nominal GDP’ be a better reflection of the stuff actually counted by the bureaucrats?
According to Corrigan, potentially.
For one he is suspicious over how the deflator could have soared from a negative 3.6 per cent in the second quarter of 2009 to a positive 14.5 per cent by the fourth.
As he notes, it’s especially unlikely in view of the fact that commodity prices (and hence those of many Chinese imports) went from -40 per cent year-on-year to p+50 per cent in those same six months.
This change, he says, would if anything have had a depressing effect on the deflator.
The conclusion being: somewhere, somehow, sometime — someone in China has been miscounting. Or as Corrigan sums up:
…the Confucio-Maoist desire to generate a respectable looking real GDP number last week, in order to demonstrate the Central Planners’ ineffable sagacity in combating the crisis, has given rise to a rather embarrassing clash with what had been reported by way of nominal GDP in prior quarters.
In which case inflationary fears in China should not be under-estimated by investors.
Related links:
That extra 8.20 (+50bps) in China – FT Alphaville
China seeks to curtail bank-lending binge – FT
China’s targeted lending policy - Money-supply