Tiananmen Eve Doubts About Chinese Growth

J.J. Gould May 22 2009, 4:31 PM ET

With the 20th anniversary of the Tiananmen Square Massacre coming up -- or as the Chinese government likes to call it, the "June Fourth Incident" -- yesterday's New York Times features an absorbing account of contemporary Chinese university students' complex relationship with the 1989 uprising. Two things stand out: a pattern of apolitical focus among the students on their future in China's economy, and a general lack of access to government-independent information about it. Many students harbor vague pro-democratic sympathies but aren't interested in "going there" for fear of jeopardizing their still-promising economic prospects; meanwhile 80% continue to rely on China's state-controlled media -- which is as happy to reassure them about their economic prospects as it is to suppress political history.

But then, 20% of Chinese students don't rely on it, as they don't have to; in a digital age, information barriers always leak eventually, even in China. So if low identification with the '89 anti-government protesters has at least as much to do with economic incentives as it does with information, how might access to non-censored foreign assessments of the Chinese economy affect that calculus?

Until recently, we've been pretty sanguine about China's statistics. However, the International Energy Agency has recently cast doubt on China's official 6.1% on-year GDP growth for Q1 2009 as being at least a little sketchy in light of a 3.5% drop in China's oil demand in the same quarter. This followed earlier skepticism about the Q4 2008 numbers, which showed GDP up 6.8% from the same period in '07, even though indicators like construction, car sales, and tax revenue showed decline. Now, according to an IEA report being presented to G8 energy ministers over the weekend, global electricity consumption will fall this year for the first time since 1945 (!) -- a contributing factor being a 2% drop in China, where, the Financial Times notes, "power use is seen as a more reliable barometer of economic activity than official economic measures."

I expect these inconsistencies would be pretty interesting to anyone looking to find a place in the Chinese economy today. For that matter, I expect they'd be interesting to anyone exposed to the Chinese economy at all. China-focused exchange-traded funds (such as FXI, PGJ, GXG), for example, have done impressively well year-to-date. But given the new IEA report, I'd have to ask myself how much of this rally is based on Chinese government stats -- and if I had money in those ETFs, how much of it I'd want to leave on the table.