Jeremy Wallace

I am on the record as having doubts about the validity of some official Chinese economic statistics. Provincial level GDP growth rates jump at moments of political turnover in excess of their electricity consumption and after controlling for other economic changes. I argue that data manipulation is the most likely cause of this discrepancy.

The WSJ has a story today that could fit into a similar narrative. Two purchasing manager indices (PMIs), one official and one unofficial, come to different snap judgments about the current state of the Chinese economy. Unsurprisingly, the official statistic shows growth and the private index shows contraction. Is this another case of data manipulation?

None of the economists asked to interpret the PMIs suggest that data manipulation is going on. However, the indices have known biases that help account for the different takes on the economy. The official state index has a poor track record of capturing trends surrounding the Chinese New Year holiday. Additionally, the purchasing managers that it polls are tilted towards the state sector compared with the real economy and the HSBC and Markit PMI. It is quite possible that state firms are performing better than private firms in the current situation, thus account for the difference.

Biases can certainly be one way to manipulate statistical results. One could imagine only sampling air quality in Yuanmingyuan in Beijing with sampling air in the more polluted center of the city. Conducting a city-wide survey by standing at bus stops or outside of churches on Sunday would yield a biased sample. The question is one of intent. If a bias is present because there is an intent to induce a bias in the data, then manipulation is occurring.

What about the PMIs? Taking snapshots of the Chinese economy is a difficult task. Perfecting seasonal adjustments takes serious efforts, and this is particularly the case for the Chinese New Year which moves around in time every year. Finding the right mix of firms that represent an unbiased sample of economic players is also hard.  To simply assume that the private PMI is better or more honest than the official data because of the possibility of manipulation seems a stretch at this point. If private figures continue to diverge–with the official data consistently painting a rosy picture, then bias likely will have stepped over the line into manipulation.