Chinoiserie

China recently released its growth figures for the first six months of 2006. GDP posted a hefty 10.9% for 6m06 over the same period last year, with growth in 2Q06 exceeding 11%. For an economy that is already the fourth largest in the world, this is spectacular! Investments in capital formation also exceeded 30% (if I remember correctly) as credit continues to surge. CPI only registered a minimal 1.3% for the same period.

Do I believe these figures? I don't know. But I'll give the Chinese the benefit of the doubt. You see, when I was in Canton, signs of growth were everywhere: a flurry of construction activities littered the main highway from Zuhai to Guangzhou, which I'm sure is the same for the Hong Kong-Shenzen area, as well as in the North (Shanghai-Beijing). Office towers and residential buildings were constructed not singly, but in groups, to as many as four (or even more), simultaneously!

The drawback to all these is that some factory buildings and high rises were curiously empty, as if waiting for the onslaught of foreign companies and new businesses taking advantage of China's favourable economic climate of low labour cost and high productivity.

The break-neck speed by which the country is growing is causing a lot of concern. The bubble may likely burst soon, especially if upstarts and inefficients start to be weeded out due to competitive weaknesses and credit growth remains unabated, and should the global economy experience another slowdown.

The growth is obvioulsy driven by exports, rather than consumption-led, as China registered a trade surplus for the period. But what puzzles me is the really low CPI of only 1.3%. How can that be possible, when global oil prices have been very volatile year-to-date, and which is currently testing the US$80/barrel mark. So production costs were only minimally affected?

In addition, China's growing middle class were likely to consume more during the period as well, given their new-found wealth. This is obvious, for example, in the mobile phone market which is becoming the world's biggest. I'm sure the country's per capita PCE (personal consumption expenditure) profile is improving as well, giving rise to increased demand for groceries and household goods. So, how realistic is 1.3%?

I am not an expert on China's economy. But how reliable are its official statistics, anyway?