Great Marc Faber interview and understating of inflation

Great interview with Marc Faber by The Prospect Group in which Faber also mentions Malaysia several times.

"Shadow banking, market psychology, & the global impact of American monetary policy"

"Chinese foreign exchange reserves & the Sino-American geopolitical standoff"

"Growth in Southeast Asia & the economic future of Malaysia & Thailand"

"Higher education & protecting yourself in the coming economic collapse"


Faber mentions that the cost of living has increased so much in Asia, he estimates the inflation to be about 5%. In Malaysia inflation is reported as being between 1% and 2%, which is simply incredible.

Since the inflation is used to calculate the real GDP (GDP corrected for inflation, the factor that is used is slightly different from the consumer inflation, but very similar and highly correlated), basically the real GDP growth is clearly overstated.


Tom Holland wrote an article in the SCMP "Official manipulation adds 10 per cent to China's GDP" about the same subject (but then applied to China), some snippets:


Analysts have always suspected Beijing's statisticians manipulate China's economic data to come up with growth figures that are acceptable to the country's leadership.


[with Malaysia having the highest Power Distance Index in the world, surely government servants are also motivated to construct inflation numbers acceptable to the Malaysian leadership]


Above all, they believe that the National Bureau of Statistics systematically understates China's economy-wide inflation rate.

As a result, when Beijing's bean counters correct the raw data for nominal gross domestic product to adjust for inflation, they come up with a figure for China's real growth rate (see the first chart) that is anything but real. Instead it is too high.

Suspicion - even strong suspicion - comes easily. But working out exactly how officials tweak the data, and estimating the size of the resulting discrepancy between appearance and reality, is altogether trickier.

Now a new study by Christopher Balding from the HSBC Business School at Peking University sheds some welcome light on just how the data is manipulated.

Balding argues that housing costs - usually a major item in any country's consumer price index inflation basket - are both understated and underweighted by China's statistical agency.

He points out that, according to the official data, between 2000 and 2011 Chinese house prices rose by just 8 per cent. Urban prices climbed just 6 per cent.

As Balding notes, the modesty of this increase stretches credulity to the limit, especially over a period during which China's nominal GDP quintupled and its money supply expanded sixfold (see the second chart).

"The claim that the housing component of CPI grew by less than 10 per cent between 2000 and 2011 is nothing less than comical," he writes.

Compounding the error, officials assume that 80 per cent of the population live in China's cities, where they say property prices have risen more slowly than in rural areas.

In reality, some 48 per cent of people still live in the countryside.

And then to cap everything, housing barely contributes to the official inflation figures. Between 2000 and 2010, housing costs made up just 13 per cent of China's official consumer inflation basket.


His results show that economy-wide price levels today are likely to be about 10 per cent higher than China's implied GDP deflator index indicates. Taking the third-party price data, and assuming a 30 per cent housing cost weighting, the deviation could actually be as high as 16 per cent.

Applying this correction to China's output data, argues Balding, reduces China's real GDP by between 8 per cent and 12 per cent, knocking about 5 trillion yuan (HK$6.3 trillion) off 2012's figure.

"It is disturbing that a statistical body would so obviously manipulate and produce blatantly fraudulent data," Balding writes.

"Given the relative ease with which obvious statistical manipulation was found, it is quite likely that less obvious fraud is present.

"It seems likely that much larger revisions to Chinese real GDP and other economic data are needed to produce more reliable statistics."