China’s QoQ and YoY GDP Data Aren’t Adding Up

By Tom Orlik and Fielding Chen
(Bloomberg Intelligence) -- China’s growth rates for
quarter-on-quarter and year-on-year GDP for the past year don’t
match. That, combined with confirmation that 1Q output was
underpinned by an unsustainable resurgence in real estate,
tarnishes the newly acquired shine on the country’s economic
The initial reaction to the 1Q GDP data, published Friday,
was a sigh of relief. Growth at 6.7% year on year was in line
with expectations and comfortably inside the government’s 6.5-7%
target range. If anyone noticed that the normal quarter-on-
quarter data was missing from the National Bureau of Statistics
release, few thought anything of it.

YoY Versus Accumulated Annual QoQ GDP Growth

Then, on Saturday, the quarter-on-quarter data was
published, and some of the relief turned to consternation.
Quarter-on-quarter growth in 1Q was just 1.1% -- an annualized
growth rate of 4.5%, and the lowest print since the data series
became available in 2011. Worse, based on the accumulated
quarter-on-quarter data over the last year, annual growth in 1Q
was just 6.3% -- substantially below the NBS’s 6.7% reading for
year-on-year growth.
Explaining the inconsistency between the two data points is
tough to do. Accumulated quarter-on-quarter growth over four
quarters should add up to year-on-year growth. In the past, it
has. The divergence in the 1Q readings might reflect something
as simple as difficulties with seasonal adjustment. Even so,
against a backdrop of concerns about data reliability, it can
only add to skepticism about China’s true growth rate.

GDP Sector Growth Rates, Year on Year

(Chart available in ECWB)
There was more bad news in the sector composition of
growth. Output in the financial sector slowed, as expected,
reflecting the drop in equity-market turnover. That difference
was made up by a surge in the property sector and a further
acceleration in construction. Real estate expanded 9.1% year on
year, up from 4.1% at the end of 2015 and the fastest growth
rate since the start of 2013.

Housing Supply and Demand

The reacceleration in real estate sales and now also
construction represent a deliberate government effort to restore
momentum to the sector. Now that that’s in motion, it will
likely be sustained in the months ahead. The backdrop, though,
remains massive oversupply. Any revival in construction in 2016
can only come at the expense of a larger correction further down
the road.