Is China’s Economic Information Correct?

Is China’s Economic Information Correct?

For over a week, investors 1 have been closely watching sharp changes in share prices on China’s stock market. Some investors say the wild movements have intensified 2 because of concerns about the truthfulness 3 of that nation’s economic reports. Critics say the reports can fool investors by presenting an unrealistically-strong picture of the economy.

An expert on China says the government is not inventing the economic information. But, he believes that the economy is changing quickly from traditional industries to services. He says the ways of measuring this new economic activity are unable to keep up with the changes.

China is the world's second-largest economy, a huge trading nation and major importer of everything from machinery 4 to oil and other natural resources. For this reason, its economic problems affect trading partners and stock markets around the world.

Stock prices in Shanghai and overseas markets have been in the news, in part, because of fears that China's economy is not growing as fast as some investors expect.

Weakness worries investors. And when many frightened investors sell stocks, it drives down prices. The fears intensify 5 when financial experts worry that China’s economy is weaker than the official reports show.

Ben Willis is a trader on the New York Stock Exchange.

“The Chinese economy, we thought, was growing at seven percent.  It’s probably only growing at half that. So a 50 percent reduction means you need to re-price, and that’s what you’re seeing going on in the stock markets and in the commodity markets.”

Expansion of major industries was part of economic growth in China.

Nick Lardy is an expert on the Chinese economy. He works for the Peterson Institute for International Economics in Washington, D.C. He says China is better than most developing economies at measuring industrial production, especially from state-owned businesses. But he says much of the economic growth is now coming from the service industry, which is made up largely of smaller, private companies.

"Everything from retail 6 and wholesale 7, restaurants and hotels, financial services, including banking 8, insurance, securities, asset management…”

Nick Lardy says restaurants are a good example of the growing services sector 9.

"When I first went to China, there were practically no restaurants. Now there are millions and millions of restaurants. Collecting the data on all these small firms in the restaurant business is very, very labor 10 intensive. "

He adds that better, more detailed 11 records would help Chinese leaders make better-informed decisions on economic issues. But he says the group of workers collecting economic data in China is very small in comparison to the size of its huge, fast-changing economy. 

Words in This Story

commodity – n. something that can be bought and sold

retail – adj. relating to the business of selling things directly to a buyer

wholesale – adj. related to the business of selling things in large amounts to other businesses

restaurant(s) – n. an eating place

insurance – adj. moving the risk of a loss from one person or business in exchange for money.

securities – n. something, like stock shares, that is evidence of debt or ownership

management – n. the act of controlling and making decisions about a business or office

data – n. information