How much does bad Chinese data on real estate prices matter?

The excellent Christopher Balding has the scoop:

Baseline Chinese economic data is unreliable. Taking published National Bureau of Statistics China data on the components of consumer price inflation, I attempt to reconcile the official data to third party data. Three problems are apparent in official NBSC data on inflation. First, the base data on housing price inflation is manipulated. According to the NBSC, urban private housing occupants enjoyed a total price increase of only 6% between 2000 and 2011. Second, while renters faced cumulative price increases in excess of 50% during the same period, the NBSC classifies most Chinese households has private housing occupants making them subject to the significantly lower inflation rate. Third, despite beginning in the year 2000 with nearly two-thirds of Chinese households in rural areas, the NSBC applies a straight 80/20 urban/rural private housing weighting throughout our time sample. This further skews the accuracy of the final data. To correct for these manipulative practices, I use third party and related NBSC data to better estimate the change in consumer prices in China between 2000 and 2011. I find that using conservative assumptions about price increases the annual CPI in China by approximately 1%. This reduces real Chinese GDP by 8-12% or more than $1 trillion in PPP terms.

If you would like to hear what is wrong encapsulated in a nutshell, try this:

According to [official] NBSC data, the food component of the CPI in China as responsible for 99% of inflation between 2003 and 2011.  Thinking of this another way, this implies that the NBSC is claiming that the only prices to rise in china between 2003 and 2011 were food prices.

Comments

Granted there has been some development (subways) in my area, but rents in my Beijing neighborhood are up 40% inside of three years.

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Heh - it's all about the index I guess. We exclude food and energy. They also exclude energy .. and everything else except food.

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In my Beijing neighborhood, rents are up 40% in three years. Food prices are up 20-40%.

The BPP dropped China pretty quickly, but as I understood it they were still collecting data. I'm surprised no numbers have leaked out.

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Considering his past effort at checking prices was deplorable, I'm going to read this with a very skeptical eye. (I was the commenter "Sean" on his blog there, and at Scott Sumner's responses.) Nat'l statistics aren't nearly as bad as people make them out to be -- the NBS is doing its best in an environment that's not conducive to direct measurement. The numbers they give measure what they say they measure as best they can tell. (As a good barometer -- read YUM's releases and look whether their wage and food price inflation is close to the official numbers; they're never far off.) The layman's interpretation of 'what they should measure' is always different, and as Handle points out, makes people frustrated elsewhere.

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Chinese data is unreliable has been in the limelight for years http://bbc.in/121LoC9. Nothing new.

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It does not neccesarily mean that food prices were the only thing to rise; it could mean that some things declined in price enough to offset those that rose.

You clearly don't live in China.

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There's no obvious reason why a mistake in estimating the Chinese CPI growth rate would affect the level of Chinese real GDP today in PPP terms. According to current reported PPP estimates, China ia a considerably more expensive place than Taiwan, so it's pretty hard to argue that Chinese GDP PPP is being overstated. Recall that half of the Chinese live in rural areas where the cost of living is ultra cheap.

Having said that, I do find it plausible that official Chinese CPI data understates the "true" rate of inflation. (Of course there is no true rate of inflation, as the term has never been clearly defined. So let's say plausible rate of inflation.)

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Everybody eats.

... sometimes ... so hold on ...

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Not in Africa.

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According to [official] NBSC data, the food component of the CPI in China as responsible for 99% of inflation between 2003 and 2011. Thinking of this another way, this implies that the NBSC is claiming that the only prices to rise in china between 2003 and 2011 were food prices.

Ummmm... wow. Of course inflation as a single number applicable to an entire economy as a NGDP deflator is problematic even in the best of circumstances.

I think the problem here is not so much how the numbers might change, but the fact that the errors seem to be very large. We know China is growing because it's much less poor than it used to be, but I'm not sure the difference between 10% growth and 5% growth is something ascertainable given the state of the data.

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According to NBSC data, the food component of the CPI in China as responsible for 99% of inflation between 2003 and 2011. Thinking of this another way, this implies that the NBSC is claiming that the only prices to rise in china between 2003 and 2011 were food prices.

Ummmm... wow. Of course inflation as a single number applicable to an entire economy as a NGDP deflator is problematic even in the best of circumstances.

I think the problem here is not so much how the numbers might change, but the fact that the errors seem to be very large. We know China is growing because it's much less poor than it used to be, but I'm not sure the difference between 10% growth and 5% growth is something ascertainable given the state of the data.

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According to [official] NBSC data, the food component of the CPI in China as responsible for 99% of inflation between 2003 and 2011. Thinking of this another way, this implies that the NBSC is claiming that the only prices to rise in china between 2003 and 2011 were food prices.

Ummmm... wow. Of course inflation as a single number applicable to an entire economy as a NGDP deflator is problematic even in the best of circumstances...

I think the problem here is not so much how the numbers might change, but the fact that the errors seem to be very large. We know China is growing because it's much less poor than it used to be, but I'm not sure the difference between 10% growth and 5% growth is something ascertainable given the state of the data.

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I once calculated, based on energy arguments, that Chinese GDP is overstated. I published this online in Usenet around 2004. This is further evidence of manipulation of economic data for political purposes, as is done in Argentina.

Now here's another shocker: I have calculated, but not yet published, using indirect Dimensional Analysis arguments, that both India and China overstate their population. They actually have less people than they officially claim. I can't get into it here. Since I don't post on Usenet much anymore I will let somebody else take the credit, but you read it here first.

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So in China, they understate the inflation rate by excluding the high price of renting. In America, we understate the inflation rate by excluding the high price of buying. What are the comparative effects on policy?

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