China's Trump Card

Chapter 5A Race on the Digital Turf

5.1 Reform and Technology Independence

There is always a discrepancy between market perception of China's economic health and the Gross Domestic Product (GDP) number reported by the National Bureau of Statistics (NBS). The GDP figure is considered too smooth to reflect the corresponding changes in other economic statistics such as industrial value added. Many economists in the financial market decided to develop their own gauge of Chinese growth momentum. There is a slew of “China activity indices” published by research houses. Many indices are simply estimated by blending many high-frequency indicators through a principal component analysis or a regression. If there is a discrepancy between the index reading and GDP, analysts typically question the reliability of GDP data.

Price is supposed to reflect the underlying condition of supply–demand in economics. For a large economy like China, GDP data released 21 days after the quarter has ended is a poor gauge of economic activity. Instead, price movement can indicate if the economy is overheated or underutilized. In China, producer prices are largely determined by the free market, unlike many items of consumer price index (CPI), which are regulated by the government. In the past few years, the upturn and downturn of China's producer price index (PPI) certainly points to the movement of growth momentum. Statistically, the index is closely related to the Purchasing Managers Index (PMI), a monthly ...