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There Goes The Credit Impulse: Why Chinese Consumption Is On The Verge Of Collapse

Recently we discussed how in addition to the widely manipulated Chinese GDP data, new concerns had emerged about official data involving Chinese industrial profits, because while China’s National Bureau of Statistics has traditionally reported positive year-on-year growth rates in percentage terms, growth in absolute yuan terms has been negative. This deviation, which barely happened in the past, has reinforced scepticism over the quality of Chinese “data” and fueled fresh suspicion that the NBS generates data outcomes that match the policy goals of the Chinese government leadership instead of reflecting the true state of the economy.

More recently, similar worries have been noted over China’s consumption data, which have been sending what Goldman politely calls “mixed signals lately”, and which a more cynical take would dub “massaged”, if not outright fabricated. Which, with China’s economy increasingly turning into a consumption-driven model like that of the US, is a problem if economists, analysts and investors are unable to get an accurate grasp on consumption trends in the world’s second largest economy.

The problem in a nutshell: NBS retail sales slowed in Q2 and also in July, while NBS household consumption expenditure and GDP final consumption contribution (quarterly data) rebounded relatively strongly in Q2. Other widely observed consumption data include 100 major retailers’ sales, with the data painting a bearish picture in recent months and showing negative year-over-year growth in July.

This, as Goldman notes in a Saturday report, has led many investors to ask: where does the divergence come from and how has consumption been growing in reality?

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