Gao Xu's blog

In his comment on one of my previous blog posts, CrisisMaven asked me whether or not Chinese statistics are manipulated to meet political objectives. Indeed, it is not unusual for a foreign observer to question Chinese data like that. Given the importance of this question—if the underlying data is manipulated, all analysis based on it will be distorted—I would like to use this blog post to answer it.

Is the data manipulated by the authorities to meet political objectives? My answer to it, at least regarding the data in recent years, is a firm NO. How do I know that? The reason is pretty simple: in such a big economy as China, it is extremely hard, if not impossible at all, to massage the data without leaving any trace—any manipulation in the data will be quickly spotted by observers—and I personally haven’t found any signs of data manipulation in recent years.

(Blog Admin note: please be aware that Gao Xu is no longer working for the World Bank and cannot follow up on new questions or comments on his posts.)

In my last blog post on Chinese State Owned Enterprises (SOE), I showed that although SOEs—enterprises with the state as their biggest share holder—only make up less than 5 percent of total enterprises in China, they control almost 1/3 of total enterprise assets due to their big sizes—on average, SOEs are about 14 times larger than their non-SOE peers. Now, I turn to another key question: How profitable are they?

Views on the profitability of Chinese SOEs are usually diverse. Some people believe they are not very efficient, lagging far behind their non-SOE counterparts, while some others think they are gold mines, generating tremendous profits. In fact, there is much to be said on both sides. AsI’ll show you next, there is a great variety among Chinese SOEs. Those in the sectors monopolized by the state generally have very good profitability, while those in the sectors with small entry barriers for non-SOEs generally record poor performance. Hence, both sides are partially right. To better understand the profitability of Chinese SOEs, one should dig deeper into the individual sectors.

This time last year, when the dismal 6.8% GDP growth data for China in the 4th quarter of 2008 came out, David Dollar, the former country director of China in the World Bank, asked in his blog whether one should interpret the data positively or negatively. (In other words, was the glass half full or half empty?) Compared with this uncertain situation a year ago, the Chinese economy is now in much better shape. Newly released data shows that the average GDP growth in 2009 is 8.7% – well above the most upbeat forecast made in early 2009. The growth even accelerated to double digits in the 4th quarter of 2009, standing at 10.7% (figure 1).

(Blog Admin note: please be aware that Gao Xu is no longer working for the World Bank and cannot follow up on new questions or comments on his posts.)