Magazine article Global Finance

China: Behind the Numbers

Magazine article Global Finance

China: Behind the Numbers

Article excerpt

Global Finance: What economic indicators does your firm focus on in China?

Leland Miller: Growth alone is not a good indicator, due to China's borrowing and spending. Additionally, GDP information can be easily manipulated and numbers are not transparent. We take into account additional factors, such as labor and credit markets. Non-performing loans and cost of capital in various geographies are also better indicators.

OF: How significant Is the difference between China's official economic statistics and your numbers?

Miller There is a significant gap between China's positive outlook for GDP and our estimated numbers for corporate revenue growth and cash flow. Chinese GDP measures aggregate growth and not productive growth, which is the more meaningful indicator. The reality is that many financial actors do believe the Chinese official numbers, and markets move accordingly. For instance, in the summer of 2015, Chinese stock markets collapsed and the manufacturing index showed negative results, but our analysis showed only a mild slowdown and growth in some other parts of the economy. Eventually, the Chinese economy did not collapse in the way that many people expected.

OF: How do you assess the state of the Chinese economy and its debt?

Millen We see China as a two-tier economy. One tier is manufacturing-the old economy; and the other is services-the new economy. Even if manufacturing is down in China, the economy can be balanced if services are doing well. There is an improvement in China's high levels of debt and its labor market. …

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