China Data.

            During the late 1980s, Judy Shelton, a researcher at the Hoover Institution, began an examination of the public documents on the Soviet Union’s budget.[1]  Communism’s centrally-planned economy had spent decades setting unreachable production targets and then hiding the failure to achieve those targets.  The huge Soviet arms build-up after the humiliation suffered at the hands of the Americans in the Cuban Missile Crisis had long term effects.  The military (the “metal-eaters” as they were called) creamed off resources that could have been devoted to either civilian consumption or investment in production.  Economic stagnation went hand in hand with mounting popular discontent behind a veneer of great military power.  Shelton concluded that massive inflationary forces were being held back by controls, but eventually the dam would burst.  In the meantime, she argued, Mikhail Gorbachev sought to stave off the disaster by obtaining Western credits and technology.[2]  As Shelton predicted, collapse followed. 

            Twenty years on another financial crisis arose in Greece.[3]  Following a historical pattern, Greece had borrowed a lot of money from foreign lenders, spent the money on a higher standard of living in the short-term without investing in higher productivity in the long-term, cooked the books to cover what they were doing for as long as possible, and then loudly bemoaned their unjust fate when the sheriff finally showed up. 

            The common thread here is that reality and perception differed widely.  Both the Soviet Union and Greece worked hard to project an image that concealed grave problems.  Only a handful of budget experts could—with much labor—discern the truth.  The reason these historical cases matter is because not everyone today is happy with the state of data from China.   

            In the eyes of one analyst,[4] it is necessary to do a lot of digging to figure out what is going on.  On the one hand, Chinese government officials and managers are under continual pressure to meet certain quantitative standards.  In this situation, “real” growth (adjusted for inflation) is more important to managers than is actual new output.  So they may tend to overstate “real” growth.  Calculating inflation is a coarse art in China when compared to Western industrial countries.  This facilitates overstating “real” growth.  In addition, the government suppresses existing, reliable data reports when they diverge too much from the government’s line.  In 2016, the government halted publication of lending to public versus private borrowers; in 2018, it halted publication of purchasing managers indexes in Guangdong province. 

            On the other hand, this manipulation of data can makes things really difficult for people who are just trying to do productive things.  Obviously, it hinders the work of foreign observers who are trying to understand and anticipate the performance of the world’s second largest economy.  However, it can have the same effect on Chinese managers struggling to run their firms.  If uncertainty about economic performance piles up year after year, there’s going to be a reckoning.  Also, this isn’t public finance, but it may be true there as well. 


[1] On Shelton, now a controversial figure and notable spoil-sport, see: https://en.wikipedia.org/wiki/Judy_Shelton   

[2] Judy Shelton, The Coming Soviet Crash: Gorbachev’s Desperate Pursuit of Credit in Western Financial Markets (1989). 

[3] Carmen M. Reinhart and Christoph Trebesch, The Pitfalls of External Dependence: Greece, 1829-2015 (2015), Brookings Papers on Economic Activity, https://www.brookings.edu/wp-content/uploads/2015/09/ReinhartTextFall15BPEA.pdf 

[4] Nathaniel Taplin, “China’s Growth Data Dazes and Confuses,” WSJ, 5 January 2021. 

Climate of Fear X November 2014.

For twenty years China has been driving hard for industrialization. About 70 percent of all Chinese energy comes from coal. Chinese industry burns coal for fuel and Chinese apartment buildings are heated by coal-burning generators. China burns about as much coal as every other country in the world combined. The newly-affluent Chine middle-class buys cars. There are already 120 million cars and as many other motor vehicles spewing out exhaust.

Of the twenty most-polluted cities in the world, sixteen are in China. All sorts of ludicrous examples of the “How bad is…?” variety can be cited. During one recent bout of smog in Beijing, for example, a factory caught on fire and burned for three hours before anyone noticed the flames. This is at least as bad as that time the river that runs through Cleveland caught fire.

The health effects are awful. Over the last thirty years, Chinese lung cancer rates have risen by 465 percent. Thousands of people stream into hospitals complaining of breathing problems whenever air pollution becomes particularly bad.

The Chinese government turned a blind eye to this problem for a long time. Recently, they have found it much harder to pretend that killer smogs are just “heavy fog.” For one thing, foreigners don’t want to visit China if it just means that they’re going to feel like they’ve been working through two packs of Camels a day for twenty years. Tourism has fallen off and foreign businessmen don’t want to base themselves in China. For another thing, ordinary Chinese people are starting to complain. Since Tiananmen Square back in 1989 most Chinese have been cautious about demonstrating for democratic government. However, the environmental problems are pushing people into the streets for reasons other than a stroll in the park. One count estimates that there are 30,000 to 50,000 protests a year over clean air, clean water, and clean food.

The pollution problems have become so severe, and have generated a measure of public unrest, that the government began preparing for a shift to nuclear power and renewable energy sources. Looking down-range fifteen to twenty years, they seem to have concluded that they would have to continue expanding the generation of electricity through carbon-burning while preparing for a transition to other forms of energy. Hence Chinas commitment in November 2014 to reach peak carbon burning and to draw 20 percent of their energy from non-carbon sources by 2030, formalized its existing policy.

Still, this commitment leaves a bunch of stuff—aside from ash particles—up in the air.     How much energy will China require in 2030? Are they close to meeting their projected needs already? If so, then reaching peak could be a simple matter. What if they’re only at their half-way mark? Is there any quantitative value assigned as the Chinese peak? Or do the Chinese just get to expand carbon burning as fast as they can until 2030, while also expanding non-carbon energy sources to 20 percent of whatever is the total peak? Will China be building nuclear power plants and solar collectors at a rapid pace for decades to come? If the Chinese government is responding now to public unhappiness with pollution, how will it respond in the future to public unhappiness with either slowing economic growth or trying to transition away from a major industry?

 

“The face-mask nation,” The Week, 15 November 2013, p. 9.

Henry Fountain and John Schwartz, “Climate Pact by U.S. and China Relies on Policies Now Largely in Place,” NYT, 13 November 2014.