Trust in China's economic data

The People’s Bank of China (PBOC)’s decision not to release information about outflows of capital in January 2016 highlights concerns about the reliability of China's economic data.


Since The PBOC failed to include data on capital outflows in its regular report on the Sources and Uses of Credit Funds of Financial Institutions.  The bank seemingly merged the data for the “position forex reserves” into the “other items” category, and altered another key item – a reading for foreign exchange purchase positions in renminbi for all financial institutions, including the central bank. These alterations seem arcane, but highlights how politics trumps all. This is a problem for investment in China.  Capital outflows have proven worrying since mid-2015, as fears of a hard landing have stoked stock market declines and yuan devaluation.  Indeed, China’s foreign exchange reserves fell about USD500 billion in 2015, slipping USD117 billion in September 2015 alone. The falls have since slowed, but remain high. 

The PBOC has every right to change its reports, but the timing is questionable, and it is this that has made investors querulous. They fear the government is seeking to hide the economy’s frailties.  Such opacity is obviously tempting, but it can just as easily encourage investors to expect the worst – as when the PBOC’s decision to change its exchange rate regime in August 2015 without explanation provoked the fears of devaluation that led to recent capital outflows.

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Citation: “Trust in China's economic data,” Sovereign Data Vol 2. No. 3 (March 2016).