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For a true view of Chinese economy, look from the sky: N.Y. Fed
April 19, 2017 / 3:26 PM / 5 months ago

For a true view of Chinese economy, look from the sky: N.Y. Fed

NEW YORK (Reuters) - Measuring how bright China appears at night may help provide an accurate snapshot on the world’s second economy, a New York Federal Reserve blog post showed on Wednesday.

Some on Wall Street have questioned the accuracy of Beijing’s official gross domestic product reading, arguing it overstates actual economic activity.

By including satellite measurements of nighttime light intensity emitted from China, New York Fed economists Hunter Clark and Maxim Pinkovskiy and Columbia University economics professor Xavier Sala-i-Martin concluded Chinese economic growth did not plunge in 2015 as some had feared with a stock market crash in that June followed by a surprise devaluation of the yuan two months later.

”Our research simply indicates that, at present, there are few immediate indications that Chinese growth is being systematically overestimated,“ they wrote in their blog post, ‘Is Chinese Growth Overstated?”

The nearly 30 Chinese provincial administrative units they studied showed nighttime lights growth from satellite measures were in line with GDP growth.

Some analysts have developed their measures on Chinese GDP based on averaging the growth rates of electricity output, rail freight and bank loans, also known as the “Li Keqiang index.”

These three factors are said to be favored by current Chinese Premier Li Keqiang to gauge the economy of Liaoning when he was the Communist Party Secretary of the Chinese province.

These alternative models based on the “Li Keqiang index” suggested Chinese GDP grew less than 5 percent or perhaps even below 3 percent in the last quarter of 2015. This was far lower than the official figure of 6.8 percent, the New York Fed post said.

Clark, Pinkovskiy and Sala-i-Martin said weightings of the three factors in the “Li Keqiang index” may have to be adjusted to reflect structural changes the Chinese economy is undergoing.

The Chinese loan growth has been stable going back to 2005 with the exception during the global credit crisis in 2008, while freight growth has fallen over the past 12 years as China has been shifting away from a manufacturing-oriented economy to a service-based one, the economists said.

Loan growth should be given six to eight times more weight than rail freight growth in the “Li Keqianq index”, with the optimal weighting on electricity production growth somewhere in between, they said.

“In fact, our estimate for Chinese growth shows an appreciable acceleration in 2016, even as the official growth rate remained virtually unchanged,” they said.

Reporting by Richard Leong; Editing by Alistair Bell

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