Raising concerns about China’s energy data quality

Nick Butler wrote a recent column in the Financial Times that gives us concern about the data we are getting from China. He gives three reasons why the data may not be accurate. What do you think?

 

Treat China’s dubious energy data with caution

The most interesting comment at Davos this year came from the French economy minister Emmanuel Macron who said that he simply did not believe for a second the figures put out by the Chinese government claiming that their economy had grown by 6.9 per cent in 2015. To anyone familiar with Chinese statistics the comment is welcome because it brings into sharp focus the fact that no one can trust the data being produced by what is now one of the world’s largest economies. The doubts are not limited to macro economic numbers. Chinese data on the energy sector also deserve to be regarded with great scepticism.

There are three reasons why Chinese data might be inaccurate. The first is that it is simply extremely hard to gather reliable data across a country which is so vast. Good data is hard to come by. In Nigeria gross domestic product was revised upwards in 2013 by 89 per cent because the old basis of calculation was inaccurate. There are many issues even in much smaller and more developed countries.

Second, getting good data is even harder when the economy is growing rapidly — as China’s has been for the last three decades. Most statistics are assembled through a set of proxies and assumptions based on past behaviour, but if activity is growing rapidly and simultaneously changing in composition it is hard for even the most expert and honest statisticians to get the calculations right.

The third issue and the real problem in China, however, is that statistics are used for propaganda purposes and as a tool of political management. The country has modernised in many ways since the death of Chairman Mao but it is still centrally run by the Communist party whose primary, driving purpose is to stay in office.

To admit that GDP grew at 2 rather than 7 per cent would cause a severe loss of face for the party and for President Xi Jinping. In addition, it would add to concerns about the durability of a Chinese economy in which the ratio of debt to GDP is now probably more than 300 per cent. The government claims that only 1.6 per cent of those loans are non performing — a laughable figure. Low GDP numbers would also raise the dangerous issue of unemployment — something that is not supposed to exist in the People’s Republic. The economic restructuring now underway from heavy industry to services is clearly causing serious over capacity and job losses in areas such as steel production. With low growth, the scale of unemployment is undoubtedly greater than at any time since the end of the Cultural Revolution. Telling the truth could be rather dangerous for a government that is ultra sensitive to criticism.

The problem does not stop with GDP data. The Chinese have recently put out various numbers on the energy sector, few of which stand up to detailed analysis. They claim, for instance, that while GDP grew at 6.9 per cent in 2015 electricity consumption rose by just 0.5 per cent. If true, that would represent one of the most remarkable gains in efficiency ever reported. Coal consumption is said to have fallen by 5 per cent while renewables — led by wind — have grown dramatically. Energy use per unit of GDP is now 18 per cent lower than it was in 2010 — well in excess of the government’s target.

Some of the claims being made are likely to be true directionally — the problem is exaggeration. There is, for instance, every reason to think that coal consumption is lower than previously expected and possibly down in absolute terms. Renewables are certainly growing, although the recent figures on the pace of investment and the growth in market share look suspiciously high. The fall in coal use is more likely to be caused by the recession than by a sudden transformation of the energy mix.

The fact is that in China numbers are designed to serve political purposes. Within the country the government wants to show that it is dealing with the highly sensitive issue of urban air quality caused by coal burning power stations. Externally, Beijing wants to demonstrate that the country is moving in the right direction in terms of emissions and the response to climate change.

In the past a blind eye has been turned to the dubious statistics. Until recently, the country was largely self-sufficient and its activities had limited effect on the world energy market. But that has changed over the last decade. China now accounts for almost a quarter of total global energy consumption. The country imported 7.8 mbd of oil and some 200m tonnes of coal in 2015. Coal imports fell dramatically — as did the price of domestic coal but oil imports continued to grow. It is unclear whether these are temporary or permanent phenomena.

In all the main projections of the future global energy developments, Chinese consumption is a crucial and growing influence on world markets. That we don’t know the facts with any degree of certainty means an extra element of speculation is added to already volatile markets.

Equally serious is the impact on the debate around emissions and climate change. After the Paris agreement in December, the climate debate has moved into a phase where statistics showing whether countries are matching their commitments matter enormously. Some commentators would like to believe that China is now a leader in the process of change. It would be good to think so, but real confidence requires hard data which can be trusted.

Last week, Wang Baoan, the head of China’s National Bureau of Statistics, was dismissed on grounds of corruption. It is not clear if this relates to the manipulation of data. But if the Chinese now wish to restore confidence in the data they publish they should appoint a senior independent non-Chinese expert to fill the vacant role.

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