China’s GDP Growth At 6.8% Again – Any Way We Can Check This?

We’ve all long known that there’s something screwy about China’s GDP growth statistics. The only interesting question we’ve got is, well, how screwy? For example, if we add up all the provincial figures then we get to something which isn’t in accord with the national numbers. The reason here is that provincial Communist Party cadres gain prominence and promotion from higher growth figures – thus they lie about them. However, the national government isn’t entirely dumb so they already take account of this.

But, you know, communist party and all that, how do we know whether the national party is lying? After all, they currently – they used to do it by killing everyone who disagreed but this is a little out of style these days – claim their legitimacy from the manner in which their planning of the economy works. Therefore there’s always going to be that incentive for the economic outcome to be exactly what is planned. As it does turn out to be in fact.

So, should we trust this number?

China’s Quarterly Growth Comes In (Again) At 6.8 Percent

That again there shows what people are thinking, doesn’t it?

BEIJING (Reuters) – China’s economy grew at a slightly faster-than-expected pace of 6.8 percent in the first quarter, buoyed by strong consumer demand, healthy exports and robust property investment.

Hmm, amazing, bang on plan.

There are those who insist these numbers cannot be right. And yet they’ve been insisting that for so long that we’re really rather sure that past numbers were at least about right. Because if they’ve been overstating the numbers as much as is claimed for a decade or two then we would see a vast gulf between the recorded numbers and that reality outside the window. And the truth is we’re not seeing a vast gulf. Life for most to near all Chinese is getting better at a fast rate. Oh, sure, we can ponder on a percentage point or two here and there, worry about the shadow banking system, property speculation, we’re not trying to say that all is peachy.

But those GDP numbers aren’t grossly wrong over time. Still, we’d like to be able to check that:

Satellite Readings
To resolve these issues, we need to develop a transparent, data-driven procedure centered on an independent gauge of Chinese economic growth—one whose measurement error is unrelated to those associated with the components of the Li Keqiang index. We argue that such an independent measure exists in the form of satellite-recorded data on the brightness of nighttime lights across Chinese provinces over time. It has been well established that growth in nighttime light intensity is a good proxy for economic growth. By gauging how well changes in different economic variables correlate to fluctuations in nighttime light intensity, we can see which series are more reliable as growth indicators.

The task of measuring the relationship between nighttime light intensity and true unobserved economic output is complicated by weather and atmospheric disturbances, both of which affect how light is captured by orbiting satellites. These errors are plausibly unrelated to those that dog conventional statistical measures, which are subject to systematic reporting errors by people and businesses, mistaken decisions by statistical agencies, or, in some cases, outright manipulation by government officials or economic actors. Hence, nighttime lights are useful as an “independent referee” to determine the quality of conventional statistical series.

Great idea. Except, well, except.

I should be hugely in favour of this. As some will know I spent a decade as the major (in some years, only) supplier of scandium into the global lighting business. Much of the light we can see from space comes from scandium equipped light bulbs – street lights particularly. So, great, one of the markers of people getting richer around the world is the amount they trade with Tim Worstall. I can live with that.

It’s also true that the method has been shown to work, it calibrates nicely with the reality of changing incomes on the ground.

Which is where the except comes in. Technology changes. And we’ve got to be able to distinguish between cyclical changes – the ebb and flow of GDP growth say – and structural changes. If lighting technology stayed the same over time then the incidence of night time light would be good proxy for economic growth. For we do know other things about light – as William Nordhaus pointed out, light seems to be a normal good, we spend a consistent portion of our income on it as incomes rise. At some level of income, as with near everything else, we’d expect it to become an inferior good, we spend a smaller portion of rising incomes upon it, but this isn’t something we’ve observed as yet.

So, we’re copacetic with this measure then. Except – what if lighting technology changes? And there’s the thing. These past few years have seen a change in such lighting technology. We’ve moved from incandescents (not really what is measured by satellites, nor CFLs) and halogen bulbs to, even in street lighting, LEDs. Perhaps the most important point about these being that the bulbs are directional – they don’t throw as much undirected light up into space as the earlier technologies.

You can see the problem we’ve got with satellite measurements now I hope?

For example, if Chinese lighting technology changed during the time period of our analysis, leading to a proportional brightening of all Chinese lights, the weightings we derive for the components of our new GDP growth proxy would not be affected.

Don’t think they’re adjusting properly for that.

Looking back at the prediction for the end of 2015, we can reject the dire growth-collapse scenarios that were suggested by some of the Wall Street indices at the time, with it being very unlikely that the true growth rate of China was much below 6 percent. On the contrary, while we generally can’t reject that the official growth estimates are correct, we also can’t reject that they have understated Chinese growth since 2012, with the true level being closer to the average seen in the 2005-12 period.

That though sounds about right to me.

After all, what we’re really talking about here is how rich 1.3 billion people will become when freed from Maoist idiocy. Given that Maoism really is idiocy, that’s quite rich.