Hugh Hendry: Investment Outlook May 2010

The issue with Chinese data is that which has afflicted all communist governments over the years. Key economic indicators, whether they are in GDP, credit growth or grain production, stipulate a desired (and not always realistic) level of output, rather than the sum of individual achievement. When things go wrong, local officials prefer to secure their jobs by presenting results in-line with the state target rather than telling the truth. This means the centrally-compiled data can often end up wildly misrepresenting the real situation, particularly when events on the ground deviate substantially from the official target.

There is some history to this. During the period of Chairman Mao's Great Leap Forward, government policy relied upon absurdly high projections of grain output in order to fund the rapid industrialisation of the country.

China was selling grain to Russia in exchange for military and industrial hardware. But it could only afford its Russian arsenal owing to its fourfold increase in grain confiscations from a population which had already been struggling to feed itself since the forced collectivisation of the mid 1950s.

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