WASHINGTON (MNI) – The following is the second section of the text
of the Dallas Federal Reserve Bank’s Economic Letter on an analysis of
China production statistics, by Janet Koech and Jian Wang, published
Thursday:

Improving Data Reporting

Although China’s economic growth has slowed sharply in recent
months, evidence suggests that the situation may be worse than reported.
Several factors contributed to Chinas slowdown. Demand for China’s
exports in Europe and the U.S. has weakened amid the deepening European
sovereign debt crisis and sluggish U.S. economic activity.

Additionally, China’s policy response following the global
financial crisis is having unintended effects on its economy. China
loosened monetary policy and undertook a massive fiscal stimulus program
in response to 2008-09 developments. These policies, which cushioned the
economy from the impact of falling demand for exports, had the
unintended consequence of generating higher inflation and rising asset
prices, particularly in the real estate sector. These developments
forced China to reverse course and institute tighter monetary policy
last year, creating another round of effects on the economy that
continue this year.

China’s abrupt policy changes during the past two years are not
historically unusual and have been criticized as a source of the
country’s big economic swings, which hurt long-run growth. Future
policymakers will need more, high-quality quantitative (as opposed to
qualitative) economic research to avoid overshooting policy targets and
to better stabilize the economy.

A critical first step is acquiring high-quality economic data, a
process already in the works. Chinas National Bureau of Statistics
started a new data-collecting system under which businesses report
industrial production data online directly to the national statistics
agency in Beijing, reducing the chance of manipulation by local
authorities. As the world’s second-largest economy, China plays an
increasingly important role in the global economy. Acquiring accurate
economic data is not only useful to Chinas policymaking, but also
helpful to other nations, allowing them to better understand China’s
current economic conditions and design their policies accordingly.

About the Authors

Koech is an assistant economist and Wang is a senior research
economist in the Research Department at the Federal Reserve Bank of
Dallas.

** MNI Washington Bureau: 202-371-2121 **

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