Is China really growing at 7.5%? Not according to Citigroup’s ‘Li Keqiang index’

Say what you like about controversial whistleblowing website WikiLeaks and its embattled founder Julian Assange, but the organisation has lifted the lid on a number of rather glorious indiscretions alongside the more serious leak of military secrets that it has become notorious for.

One such nugget to be revealed was how Li Keqiang – now Chinese premier, but at the time the lesser known head of Liaoning province’s communist party – admitted over dinner with the US ambassador to China in 2007 that the country’s GDP figures were “man-made” and therefore unreliable. Mr Li went on to say that instead, he focused on just three data points – electricity consumption, rail cargo volume and bank lending – when evaluating his province’s economic progress.

Citigroup have taken Mr Li at his word and have constructed an inspired ‘Li Keqiang Index’, using the three economic indicators mentioned above to give an insight into the country’s economic health under his premiership. And indeed, the index (see chart) does point to a significant slump that’s more pronounced than the decline in the official Chinese GDP numbers. This trend ties in with other data that investors have been focussing on, including the slump in commodity prices (although it’s important to remember that the price of an asset can fall not only due to a drop in demand, but also an increase in supply, and some big producers in iron and coal in particular have been ramping up supply).

Some might argue that the reliability of the data underlying the Li Keqiang Index may now also be compromised since his views on what does and doesn’t constitute reliable data first went public back in 2010. Regardless, the various data sources seem to be converging around the point we have been arguing for many years – namely, that China is on course for a fairly spectacular slowdown and that it’s hard to see how it won’t end badly, not least for the many countries that have become increasingly reliant on a strong Chinese economy and are now very vulnerable to Chinese economic weakness.

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