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Price pressures in China

Inflation revisionism

Feb 15th 2011, 6:40 by S.C. | HONG KONG

CHAIRMAN MAO used to rail against the evils of revisionism. But statisticians unlike ideologues like to review, update and tinker with their past pronouncements. So it is that China's National Bureau of Statistics (NBS) today published a revised set of inflation figures, dating back to the beginning of last year. The number that grabbed the most attention was the latest one, showing that consumer prices rose by 4.9% in the year to January. Most China-watchers were expecting a figure well over 5%.

Investors seem pleased that inflation was lower than feared. But some analysts took a more Maoist attitude to the revised figures. One broker told Bloomberg that the National Bureau's tinkering "suggests a fudging of the numbers". 

What has the NBS done, exactly? Like all inflation measures, its index reflects the cost of a basket of goods. The NBS must decide what to put in the basket and what weight to give each goodie. Their choices should change as consumer habits evolve. For the new series, the NBS has increased the weight of housing (by 4.22 percentage points) and cut the weight of food (by 2.2 points). It has also made a number of smaller tweaks: cigarettes and alcohol, for example, apparently now figure less prominently in the spending of abstemious Chinese. Although the NBS is happy to reveal how the weights are changing, it is not yet ready to say what the weights actually are. But HSBC's Qu Hongbin and Sun Junwei have hazarded a guess (see the table below). 

What difference do the new weights make? Not a lot, according to the NBS. They say that if they'd calculated January's inflation figure using the old weights, it would have come out even lower: at 4.918%, rather than 4.942% (see chart below). Nothing much for the anti-revisionists to denounce, then?

Maybe. But the weights weren't the only things the NBS changed. According to a comrade interviewed on the NBS's website, the bureau also updated the products themselves, dropping some anachronistic goods and including some more modern conveniences. Moreover, within any broad category such as "food", the relative weights of subcategories, such as grain and meat, may also have changed, according to Yu Song and Helen Qiao of Goldman Sachs.

Does that amount to "fudging the numbers"? Not necessarily. A reweighting of the index was dueChina carries out a big one every five years. It is not as if the bureau picked this moment to reweight the index just because inflation was uncomfortably high. Moreover, I'm not sure anything is gained by understating the official figures. The broader public doesn't follow them closely enough to worry about the difference between an official figure of 4.9% and one over 5%. They only know that the price of vegetables in the market is rising too fast. 

Yu Song and Helen Qiao in particular are not saying the revisions produced a less accurate figure, only that they may have produced a lower one. But until the NBS tells us how it fills its basket, it's hard to say for sure. 

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1-20 of 38
Cloudwarrior wrote:
Feb 15th 2011 9:45 GMT

To believe or not to believe.... that is the question!

Smallperson wrote:
Feb 15th 2011 11:19 GMT

Although the lower than expected CPI has some economic and political implications (i.e. the success of the central government to combat inflation), it has a important psychological effect. The "lower" growth rate of the CPI can relieve the anxiety of the Chinese. It is because inflation will affect thelivelihood of the people, especially the lower class. For the Chinese government, the lower class (e.g. labour or farmer) is the unstable force of the society. The rising price level may trigger the discontent of the general public. As the recent event in Tunsia and Eygpt, the Central government cannot rule out the possibilty of another "Jasmine revolution. As a result, the success or not to combat the rising inflation rate is critical to the survival of the Chinses government. Today, the Chinese government has won this battle as today's incident seems to be a success of the governemt's effort. Howevr, I think this is only the beginning of their challenge. There are still questions that the central government needs to be figured out. For example, the infant economic structure of the Chinese financial government may be a potential threat to the stability of China. I think the government will need to face many problems in the future, especially in the economic field. I hope that there will be a stable China which is critical to the future economic and political power.

nkab wrote:
Feb 15th 2011 11:27 GMT

As with any indices of any economy include DJI of the big board, it is subject to updates to reflect the relevancy of the times. For the new NBS series, where the NBS has increased the weight of housing (by 4.22 percentage points) and cut the weight of food (by 2.2 points).

Such change of weighting and change trend made make perfect sense to me even though I’m not privy to the exact weighting points being assigned. This is because housing is more inflationary and less seasonal than food for example for the current state of China’s economy.

Just because “Most China-watchers were expecting a figure well over 5%” as intoned by the Economist, does not mean China’s consumer price inflation can not be 4.9% as reported by China's National Bureau of Statistics (NBS). Sorry, I choose to believe NBS over the Economist when it comes to things of China.

nkab wrote:
Feb 15th 2011 12:00 GMT

@Smallperson wrote:Feb 15th 2011 11:19 GMT

“As the recent event in Tunsia and Eygpt, the Central government cannot rule out the possibilty of another "Jasmine revolution.”
----------------------------

Dear Smallperson, you are very kind. But if you should worry about “Jasmine revolution” to extending to China, you might as well also worry about it to extend to other economies such as that of EU and the U.S. It’s a small world after all.

Ed (Brazil) wrote:
Feb 15th 2011 1:23 GMT

They publish "fudging" inflation figures and people still wanna talk about "The red back", saying the Yuan would be a reserve currency... How lost are you ?

Not to mention the secret service style securitization of bad loans made during the crisis. China's support package was cleary too big back them, and will backfire anytime now. Its been 2 years "renewing" and "Securitizing" bad loans already. can't hold this forever...

YaodongD wrote:
Feb 15th 2011 1:30 GMT

I would rather do a survey asking ordinary people about price soaring than believe the NBS's report.

Houshu wrote:
Feb 15th 2011 2:25 GMT

I’ll trust NBS more than those political China-watchers, and I’ll trust foreign investing firms more than NBS. And the article is an informative one, but would be nice to quote exactly the ‘unfudged expectations from China-watchers’, 5.1%? or 5.9%?

Houshu wrote:
Feb 15th 2011 2:31 GMT

...and for those sounded so damn certain of the real numbers, why not making some money out of your conviction? I heard that China sovereign debt's credit-swap is as cheap as US's now.

Why not simply reveal the weights? Is hiding the weights a common practice? What is the rationale behind this opacity?

Johnson Shao wrote:
Feb 15th 2011 5:29 GMT

Par for the course for the mad dogs running China.

PL123 wrote:
Feb 15th 2011 5:36 GMT

Cloudwarrior wrote: Feb 15th 2011 9:45 GMT To believe or not to believe.... that is the question!

--------------------------------------

I also don´t believe Germany´s official inflation rate. I know how much I have to pay for my purchase, and how much water diluted in my purchase.

nkab wrote:
Feb 16th 2011 12:35 GMT

@Cloudwarrior wrote: Feb 15th 2011 10:13 GMT

“@PL123
Would you believe Germany's official inflation figure if your government reported it instead?”
--------------------------

First of all, you are throwing insults at our government without cause. I don’t know your nationality so I can't give advice to your country, but I am so sorry that it or your family did not teach you better manners in posting.

Secondly, you are barking at the wrong tree or shixxing all over on the wrong post. This chap “PL123” is from Germany. Tell Chancellor Ms Angela all about it.

BTW, like clockwork, we are to have the next election in 2012, and we are to elect another guy to be our President to succeed the present one whose two 5-year terms are up by then. When is yours?

I don’t read the non-English words you affixed at your tail end, but try not to insult others, and don’t worry, here is my Chinese below for you to chew on:

“莫要自取其辱”

nkab wrote:
Feb 16th 2011 12:54 GMT

@The tru………………but the truth wrote: Feb 15th 2011 4:39 GMT

“Why not simply reveal the weights? Is hiding the weights a common practice? What is the rationale behind this opacity?”
-------------------

Why? I think you can get some clue when you understand why your good government of India either does not reveal or otherwise hides behind the opacity of the population composition stats of India’s castes, its Untouchables and OBC (Other Backward Class) from its census.

tocharian wrote:
Feb 16th 2011 2:29 GMT

It's called grading on the curve, when University professors do that. Numbers are not that sacred in China (except for 4 and 8). and reality is defined by the Communist party of China using their own "scientific method and analysis".

Houshu wrote:
Feb 16th 2011 2:32 GMT

"After all, in true democracies, any new incoming government would be only too happy to reveal any dodgy figures by a previous government. The UK is a prime example"

This is naïve. The threat of being exposed by the opposition has seldom deterred politicians from lying, actually may spurred them into telling bigger lies, such as Iraq’s Weapons of Mass Destruction.

By the way, is Tony talking yet? Or will the new government waterboard him?

In fact, at least in theory, one can turn your argument around: western politicians lie all the time to get elected, while Chinese government can afford to tell the inconvenient truth.

Feb 16th 2011 5:56 GMT

[Houshu wrote:

Feb 16th 2011 2:32 GMT
"After all, in true democracies, any new incoming government would be only too happy to reveal any dodgy figures by a previous government. The UK is a prime example"

This is naïve. The threat of being exposed by the opposition has seldom deterred politicians from lying, actually may spurred them into telling bigger lies, such as Iraq’s Weapons of Mass Destruction.

By the way, is Tony talking yet? Or will the new government waterboard him?

In fact, at least in theory, one can turn your argument around: western politicians lie all the time to get elected, while Chinese government can afford to tell the inconvenient truth.]

Not even Wikileaks deters them from lying. They simply use various excuses trying to put its founder into jail.

Devils'

country road wrote:
Feb 16th 2011 5:58 GMT

Cloudwarrior wrote:
To believe or not to believe.... that is the question!

——The Trend analysis of Inflation can be believed and obvious, but specific data is disputed. Data of CPI isn’t absolutely accurate even in advanced economies. There are too many disturbance factors, some of that are uncontrollable.

The truth the whole truth and nothing but the truth wrote:
Why not simply reveal the weights? Is hiding the weights a common practice? What is the rationale behind this opacity?

——NBS don’t hide the weights. You can search for that is published by NBS. You're right, It’s operation should be more internationalized, standardized and transparent.

YaodongD wrote:
would rather do a survey asking ordinary people about price soaring than believe the NBS's report.

——It is available and need enough samples that are representative. IMO, as a poor country, cigarettes and alcohol should be Excluded. The ratio of food should be increased. I hope the price of cigarettes and alcohol can increase by 10 times, they aren’t essential for life, less is better, prohibited is best.

Cloudwarrior wrote:
Feb 16th 2011 7:41 GMT

@nkab

Quis custodiet ipsos custodes?

It's Latin. Quite a famous sentiment within true democracies.

You could have probably found it on the a search engine..... unless the sentence or idea is banned by the Great Firewall...... Who guards the guardians?

Good luck on your next election. Who exactly is the "we" you talk about?

PL123 wrote:
Feb 16th 2011 8:19 GMT

@ CloudWarrior

And what exactly you mean true democracy??

Liorp wrote:
Feb 16th 2011 8:48 GMT

There has long been a problem with data coming from China, in various fields. I am a foreigner who is working for a big market research company, which gets its data from the NBS and other sources (much like everyone else). We often encounter "inconsistencies" with the data we receive from the NBS and the data we receive elsewhere, and it is hard to determine what to believe.

In the long run, the fact that a person cannot believe whether the data is accurate is a devastating situation for China, because foreigners and Chinese alike would like to know what the situation is - for better and for worse. If China is "fudging" the numbers, then people will stay away. Trust is the number one rule of any business conduct, and if China wants to attract investments, it must be more transparent.

I have recently written an interesting post about this topic on my blog: http://laowaiblog.com/going-back-on-ones-words/

I invite everyone to read and to comment

Thank you

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