Mark Lister: Loss of growth gauge blow for China watchers

independent data collection frequently paint a different economic picture of China than official figures. Photo / AP

Opinion

One of the biggest concerns people have with China is the lack of transparency about what is really happening in the economy.

So I was disappointed to hear that from this month Markit, one of the main companies that collate purchasing managers indices (PMIs) for different countries, would no longer be releasing a flash estimate for China.

With one less independent data point to follow, the information gap between China and everyone else gets a little wider. With that, getting an accurate read on the world's second largest economy gets more difficult and uncertainty will continue to weigh on sentiment.

There are many different pieces of information economists and market forecasters follow. Inflation, GDP and unemployment figures are some of the highest profile but trade data, confidence surveys and retail sales figures are also useful.

One that I keep a close eye on is the PMI for various economies. This particular indicator is the result of business surveys about how output, new orders, employment and prices are tracking.

The main reason I find this useful is because it's more timely than almost anything else. A preliminary "flash" estimate comes out when three-quarters of responses have been received, making PMIs real-time data points. They are useful predictors of where growth will eventually land, and we get them much earlier than things like GDP data and unemployment.

We'll still see these preliminary readings for the US, Japan and the eurozone released within 24 hours of each other, but nothing will be forthcoming from China from now on. No reasons were given for the withdrawal of the China flash PMI.

The final reading will still be released, and the Government will continue to distribute the "official" PMI, but there is still one less data point to watch.

As one of the few independent economic indicators we see out of China, this is yet another reason to be somewhat skeptical of the official data.

Markit's independent PMI has often told a different story about the state of Chinese manufacturing, relative to the government release. The official data has suggested just four months of contraction for the sector in the past three years, whereas this independent version points to a more realistic 18 months of contraction.

The latest GDP figures tell us annual economic growth in China is running at 6.9 per cent. Many will question the accuracy of this, especially given its release just 13 business days after the last day of the quarter. The US takes almost two months to release this same statistic.

Indicators like rail freight volumes and electricity production point to something closer to 4-5 per cent. Let's hope those statistics don't suddenly become unavailable as well.

Mark Lister is head of private wealth research at Craigs Investment Partners. This column is general in nature and should not be regarded as specific investment advice.