Many of the people analyzing or reporting Chinese government statistics do not actually understand what goes into certain statistics. Take retail sales for example. In China, the reported figures include purchases by the government and consumers. Since the government routinely orders government departments to make purchases when the economy is slowing, it is hard to use the retail sales figure to gauge real consumer demand.
Different data points give different pictures in China. For example:
- The official retail-sales index in December 2012 was up 15.2% yoy.
- Nielsen's index of sales of fast-moving consumer goods, which should include fewer of the government purchases which distort the official data, was up just 9% in December 2012 yoy.
- Latest result from sports retailer Nike, fast-food Yum Brands and home-electronics giant Gome were all weak.
If you are going to use Chinese statistics in your business planning or valuation models, you must understand what is and what is not included in Chinese government statistics. Then vigorously sanity check using public sector proxies without losing your sanity. Difficult, but not impossible.
Source: "Hidden Risks of a Hard Landing in China", The Wall Street Journal, February 24, 2013.
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