Economics focus
An aberrant abacus
May 1st 2008
From The Economist print edition
Coming to terms with China's untrustworthy economic numbers
AS CHINA'S importance in the global economy increases, investors are paying more attention to its economic numbers. Yet the country's official statistics are notoriously ropy. Some commentators accuse China's government of overstating GDP growth for political reasons, others complain that the official inflation rate is fraudulently low. So which data can you trust?
One reason to be suspicious of GDP figures is that China is always one of the first countries to report them, usually only two weeks after the end of each quarter. Most developed economies take between four and six weeks to produce them.
Amazingly, most economists reckon that China has understated its growth in recent years. The country's National Bureau of Statistics (NBS) has recently revised China's GDP growth up by half a percentage point for both 2006 and 2007, to 11.6% and 11.9% respectively, thanks to stronger growth in services, which government statisticians find harder to count than industry. Yet even these revised numbers may be conservative.
Chinese provinces independently report GDP, and a weighted average of their figures consistently gives higher rates of output and growth than those reported by the central government (see chart). True, local officials have an incentive to inflate growth numbers because promotion depends upon economic performance; however, experience suggests that number crunchers in local government are more accurate than Beijing's. For instance, the figures first published for 2004 showed that the sum of the provincial GDPs was 19% bigger than the reported national figure. Lo and behold, in 2005, after a national economic census picked up more services, the NBS revised its GDP up by 17%; it also lifted the annual growth rate over the previous decade.
Stephen Green, an economist at Standard Chartered, calculates that in 2007 the combined output of the provinces was 10% more than that reported by Beijing. Their average growth rate of 13.1% was also still 1.2 percentage points higher than the revised national growth rate, although the gap has narrowed from almost three points in 2005. Perhaps, suggests Mr Green, central NBS folk have decided that they should trust their local counterparts more. But just as local officials have an incentive to inflate numbers, so Beijing has had reason recently to understate them: it wants to slow the red-hot economy. China's true GDP growth may therefore be higher still—which may appear to add to fears of overheating.
Distrust of GDP has led many China-watchers to track alternative monthly measures of growth. Jonathan Anderson at UBS uses one based on production (eg, industry, electricity and construction) and another based on expenditure (retail sales, fixed investment and net exports). Neither gauge shows the same sharp acceleration since 2004-05 as does GDP. One explanation is that the reported jump in GDP growth may be an attempt to correct previously understated growth figures; if so, this could ease overheating concerns.
The government also smoothes quarterly GDP growth; other less politically sensitive indicators, such as industrial production, are much more volatile. For instance, despite severe snow storms and weaker net exports, first-quarter GDP growth slowed by less than expected and by much less than did industrial production. The government may well have made the figures look stronger to avoid criticism of its tighter credit policy.
What does—and does not—add up
The right-hand chart ranks the reliability of other Chinese statistics, based on an analysis by Goldman Sachs. The closely watched figures for fixed-asset investment are among the least reliable. They include purchases of land, which only reflect changes in ownership, not an increase in capacity or value added. Rising land prices in recent years have therefore led to a big overstatement of the level and the growth of investment. In contrast, consumer spending is almost certainly much higher and growing faster than official figures suggest. Retail sales are often used as a proxy for private consumption, but they exclude services, the fastest-growing slice of households' budgets.
China's true inflation rate is probably higher than the consumer-price index (CPI) reports. One problem is that the CPI appears to be based on the prices of state-provided health, transport and education while ignoring their increasingly important private counterparts. Data for 36 cities collected by the National Development and Reform Commission show that inflation for medical care and education has been running at 5-10% since 2001, well above the 1-2% reported in the CPI. However, even if the official measure understates inflation, the changes in it may still be a fair gauge over time. Goldman Sachs therefore ranks it relatively high in terms of reliability.
Foreign trade is perhaps the most accurate economic indicator. Critics accuse China of fiddling its trade figures, because the value of its exports as measured by the importing country is always much bigger than what the Chinese report. This discrepancy reflects the fact that China's bilateral trade figures exclude goods shipped to Hong Kong before being re-exported. But this should not affect total export figures and detailed Hong Kong data are available to adjust bilateral trade flows.
The prize for the dodgiest figures goes to the labour market. The quarterly urban unemployment rate is meaningless because it excludes workers laid off by state-owned firms as well as large numbers of migrant workers, who normally live in urban areas but are not registered. Wage figures are also lousy. There has recently been much concern about the faster pace of increase in average urban earnings. But this series does not cover private firms, which are where most jobs have been created in recent years.
Now that China is such an engine of global growth, it urgently needs to improve its economic data. Only a madman would drive a juggernaut at full speed with a faulty speedometer, a cracked rear-view mirror and a misty windscreen.
Saturday, May 03, 2008
Cool!
Innovation
Home invention
May 1st 2008 | SAN FRANCISCO
From The Economist print edition
An increasing number of tinkerers are building their own gadgets
THE standard sort of science fair can be a little bit stuffy. Precocious youngsters with a taste for laboratory notebooks spend years building experiments to compete for college scholarships. But what happens if you open the doors to a wider audience and add a bit of fun?
Such an event might look like the Maker Faire, a two-day festival which opens in San Mateo, California, on May 3rd. Like its more serious counterparts, it is a gathering of geeks, but with the addition of do-it-yourself enthusiasts, back-yard scientists, garage tinkerers, artists and crafts people. This year their eclectic projects will include fire-breathing robots, wearable computers, self-replicating three-dimensional printers (whatever they are) and giant motorised cupcakes. And everyone will be encouraged to get their hands dirty building their own electric circuits, creating their own fashion goods and launching their own rockets.
This is the third year for the Maker Faire. Last year, more than 40,000 people turned up and a further 20,000 attended a second event held for the first time that year in Austin, Texas.
The idea of playing around with technology in such a way might appear quirky, even superfluous. But nowadays it often drives innovation, says Tim O'Reilly, founder of O'Reilly Media, a publishing company whose Make and Craft magazines sponsor the event. Mr O'Reilly is something of a technology guru himself and is widely credited with coining the term Web 2.0 to capture the trend towards greater creativity, information sharing and collaboration among internet users.
Naturally, this all goes down well in California, where Steve Jobs and Steve Wozniak began the personal-computer revolution in a garage, and Sergey Brin and Larry Page dreamed up Google's algorithms while in graduate school. But the idea is spreading. Mr O'Reilly points to several trends responsible for the rising popularity of do-it-yourself innovation. First, computers, sensors and other bits are cheaper than ever. This means high-tech gadgets soon become disposable. So they are often plundered to build new things. An obsolete digital camera can, for instance, be attached to a kite for aerial photography; or with few more things and the innards of a satellite-navigation system become a small unmanned aerial vehicle.
The second trend is that the internet is enabling people from all over the world to share information about their projects. Websites like Instructables.com and wikiHow.com have become popular virtual meeting places for inventors and others. They embrace the idea that you should freely share technological ideas—an approach known as “open source”. This began in computer software but is now going on with all sorts of technologies.
Addie Wagenknecht's project is typical. At the fair she is showing a multi-touch table which works like a computer screen. The device has some of the same features as a table-top device called Surface which is produced by Microsoft. But whereas that costs some $10,000, Ms Wagenknecht's version can be built with only $500 of bits (including a kit that she sells). And it has the potential to do much more, she says. Since both the hardware and the software are open-source, anyone can change things to suit their purpose, which like most things at the fair is bound to encourage even more innovation.
Home invention
May 1st 2008 | SAN FRANCISCO
From The Economist print edition
An increasing number of tinkerers are building their own gadgets
THE standard sort of science fair can be a little bit stuffy. Precocious youngsters with a taste for laboratory notebooks spend years building experiments to compete for college scholarships. But what happens if you open the doors to a wider audience and add a bit of fun?
Such an event might look like the Maker Faire, a two-day festival which opens in San Mateo, California, on May 3rd. Like its more serious counterparts, it is a gathering of geeks, but with the addition of do-it-yourself enthusiasts, back-yard scientists, garage tinkerers, artists and crafts people. This year their eclectic projects will include fire-breathing robots, wearable computers, self-replicating three-dimensional printers (whatever they are) and giant motorised cupcakes. And everyone will be encouraged to get their hands dirty building their own electric circuits, creating their own fashion goods and launching their own rockets.
This is the third year for the Maker Faire. Last year, more than 40,000 people turned up and a further 20,000 attended a second event held for the first time that year in Austin, Texas.
The idea of playing around with technology in such a way might appear quirky, even superfluous. But nowadays it often drives innovation, says Tim O'Reilly, founder of O'Reilly Media, a publishing company whose Make and Craft magazines sponsor the event. Mr O'Reilly is something of a technology guru himself and is widely credited with coining the term Web 2.0 to capture the trend towards greater creativity, information sharing and collaboration among internet users.
Naturally, this all goes down well in California, where Steve Jobs and Steve Wozniak began the personal-computer revolution in a garage, and Sergey Brin and Larry Page dreamed up Google's algorithms while in graduate school. But the idea is spreading. Mr O'Reilly points to several trends responsible for the rising popularity of do-it-yourself innovation. First, computers, sensors and other bits are cheaper than ever. This means high-tech gadgets soon become disposable. So they are often plundered to build new things. An obsolete digital camera can, for instance, be attached to a kite for aerial photography; or with few more things and the innards of a satellite-navigation system become a small unmanned aerial vehicle.
The second trend is that the internet is enabling people from all over the world to share information about their projects. Websites like Instructables.com and wikiHow.com have become popular virtual meeting places for inventors and others. They embrace the idea that you should freely share technological ideas—an approach known as “open source”. This began in computer software but is now going on with all sorts of technologies.
Addie Wagenknecht's project is typical. At the fair she is showing a multi-touch table which works like a computer screen. The device has some of the same features as a table-top device called Surface which is produced by Microsoft. But whereas that costs some $10,000, Ms Wagenknecht's version can be built with only $500 of bits (including a kit that she sells). And it has the potential to do much more, she says. Since both the hardware and the software are open-source, anyone can change things to suit their purpose, which like most things at the fair is bound to encourage even more innovation.
More on electric cars, interesting...
Canada
Not on our roads
May 1st 2008 | MONTREAL
From The Economist print edition
Bureaucrats against electric cars, and progress
IN THESE times of high petrol prices and worries about climate change, you might think that any country would be proud to enjoy a lead in manufacturing electric cars. Not Canada, it seems. Two Canadian companies, ZENN Motor Company and Dynasty Electric Car, make small electric cars designed for city use; a third, which will use new battery technology developed by Exxon Mobil, plans to launch a model later this year.
But almost all these “low-speed vehicles” (or LSVs) are exported to the United States because Canada refuses to allow their use on public roads. Transport Canada, the regulatory agency, questions their safety. It doubts they would stand up in a collision with a delivery truck or a sport utility vehicle. Officials say they crash-tested one which didn't fare well, though they refuse to release the data. The agency wants LSVs confined to “controlled areas”, such as university campuses, military bases, parks and Canada's few gated communities. Its advice has carried weight with the provinces, which make the rules of the road.
It is true that the cars are made from lightweight metals and plastics. But the manufacturers allege political bias: Stephen Harper's conservative government has much support in oil-rich Alberta. Backed by thousands of would-be buyers, they are campaigning to reverse the agency's decision. “It's a ludicrous regulatory situation. All you can point to is oil and the big guys and think there's a conspiracy somewhere,” says Danny Epp of Dynasty.
Mr Epp reckons that his car should be allowed on urban streets with speed limits of around 50kph (30mph) or less. But Dynasty recently gave up the battle. In March it announced that it is being bought by a Pakistani firm, which will move production to Karachi and export to the United States from there.
ZENN—that stands for zero emission, no noise—promises to fight on. Ian Clifford, its boss, points out that there has not been a single death related to LSVs in the United States, where 44 states allow them and some 45,000 such cars are in use. And gas-guzzlers imperil public safety by polluting the air, he notes. But Mr Clifford is not expecting change soon. He claims that his campaign against Transport Canada has made him enemies. “Two senior, entrenched bureaucrats have told me personally that if it is the last thing they do, they'll keep LSVs off the road in Canada,” he says.
Not on our roads
May 1st 2008 | MONTREAL
From The Economist print edition
Bureaucrats against electric cars, and progress
IN THESE times of high petrol prices and worries about climate change, you might think that any country would be proud to enjoy a lead in manufacturing electric cars. Not Canada, it seems. Two Canadian companies, ZENN Motor Company and Dynasty Electric Car, make small electric cars designed for city use; a third, which will use new battery technology developed by Exxon Mobil, plans to launch a model later this year.
But almost all these “low-speed vehicles” (or LSVs) are exported to the United States because Canada refuses to allow their use on public roads. Transport Canada, the regulatory agency, questions their safety. It doubts they would stand up in a collision with a delivery truck or a sport utility vehicle. Officials say they crash-tested one which didn't fare well, though they refuse to release the data. The agency wants LSVs confined to “controlled areas”, such as university campuses, military bases, parks and Canada's few gated communities. Its advice has carried weight with the provinces, which make the rules of the road.
It is true that the cars are made from lightweight metals and plastics. But the manufacturers allege political bias: Stephen Harper's conservative government has much support in oil-rich Alberta. Backed by thousands of would-be buyers, they are campaigning to reverse the agency's decision. “It's a ludicrous regulatory situation. All you can point to is oil and the big guys and think there's a conspiracy somewhere,” says Danny Epp of Dynasty.
Mr Epp reckons that his car should be allowed on urban streets with speed limits of around 50kph (30mph) or less. But Dynasty recently gave up the battle. In March it announced that it is being bought by a Pakistani firm, which will move production to Karachi and export to the United States from there.
ZENN—that stands for zero emission, no noise—promises to fight on. Ian Clifford, its boss, points out that there has not been a single death related to LSVs in the United States, where 44 states allow them and some 45,000 such cars are in use. And gas-guzzlers imperil public safety by polluting the air, he notes. But Mr Clifford is not expecting change soon. He claims that his campaign against Transport Canada has made him enemies. “Two senior, entrenched bureaucrats have told me personally that if it is the last thing they do, they'll keep LSVs off the road in Canada,” he says.
Electric cars
Electric cars rely on electricity. Electricity relies on coal/oil/gas burning, and is priced according to fossil fuel prices. So running an electric car would cost less than running on fuel? Would it pollute less? I'm not convinced. In fact going by the inefficiency of the energy conversion cycle I would think maybe it pollutes more....
Electric Nissans Planned in U.S. by 2010
By EDWARD TAYLOR
May 2, 2008; Page B2
CASCAIS, Portugal -- Nissan Motor Co. Chief Executive Carlos Ghosn said he is preparing to take advantage of a "mass market" in electric vehicles he expects to emerge by 2012.
Nissan, an alliance partner of Renault SA of France, will launch electric vehicles in the U.S. and Japan in 2010, and globally by 2012, Mr. Ghosn said at a Nissan event in Portugal. He said he expects the market for electric vehicles to grow strongly due to high oil prices, a new awareness of environmental issues and breakthroughs in battery technology.
Eventually, Nissan "will have a whole lineup of electric cars," he said. "The electric car is not a niche product for us."
Mr. Ghosn said battery-technology advances have given the electric car sufficient range to make it a viable mode of transport for the shorter journeys often made by commuters in big cities. Globally about 10 million vehicles are being used in this way, he said.
High oil prices and the willingness of governments to give tax incentives for so-called zero-emission vehicles can change the economics of owning an electric car and make it "cheaper than gasoline," Mr. Ghosn said.
Nissan and Renault are in talks with "companies, governments and cities," to see what kind of incentives can make the introduction of zero-emission vehicles more attractive, he said.
Mr. Ghosn expects new areas of business will open as electric vehicles become more widespread, including making the batteries and providing access to batteries and electricity. Moving beyond merely making cars could see "a change of the business model" in the auto industry.
"In some ways it could move more toward how a mobile-phone operator works, because there the handset is only one part of the business; the rest is providing services to customers," said Mr. Ghosn.
One drawback of electric vehicles has been battery capacity, limiting their range. Another is that recharging a battery traditionally takes hours, far longer than to refuel a car with gasoline. Nissan and Renault are looking at ways to fix that. Renault will use a battery provided by Nissan for an electric vehicle to be launched in Israel, Mr. Ghosn said.
Mr. Ghosn reiterated that Nissan is open to expanding its alliance with Renault to other car companies, but he said that would happen only if it created value for Renault and Nissan's stakeholders.
Electric Nissans Planned in U.S. by 2010
By EDWARD TAYLOR
May 2, 2008; Page B2
CASCAIS, Portugal -- Nissan Motor Co. Chief Executive Carlos Ghosn said he is preparing to take advantage of a "mass market" in electric vehicles he expects to emerge by 2012.
Nissan, an alliance partner of Renault SA of France, will launch electric vehicles in the U.S. and Japan in 2010, and globally by 2012, Mr. Ghosn said at a Nissan event in Portugal. He said he expects the market for electric vehicles to grow strongly due to high oil prices, a new awareness of environmental issues and breakthroughs in battery technology.
Eventually, Nissan "will have a whole lineup of electric cars," he said. "The electric car is not a niche product for us."
Mr. Ghosn said battery-technology advances have given the electric car sufficient range to make it a viable mode of transport for the shorter journeys often made by commuters in big cities. Globally about 10 million vehicles are being used in this way, he said.
High oil prices and the willingness of governments to give tax incentives for so-called zero-emission vehicles can change the economics of owning an electric car and make it "cheaper than gasoline," Mr. Ghosn said.
Nissan and Renault are in talks with "companies, governments and cities," to see what kind of incentives can make the introduction of zero-emission vehicles more attractive, he said.
Mr. Ghosn expects new areas of business will open as electric vehicles become more widespread, including making the batteries and providing access to batteries and electricity. Moving beyond merely making cars could see "a change of the business model" in the auto industry.
"In some ways it could move more toward how a mobile-phone operator works, because there the handset is only one part of the business; the rest is providing services to customers," said Mr. Ghosn.
One drawback of electric vehicles has been battery capacity, limiting their range. Another is that recharging a battery traditionally takes hours, far longer than to refuel a car with gasoline. Nissan and Renault are looking at ways to fix that. Renault will use a battery provided by Nissan for an electric vehicle to be launched in Israel, Mr. Ghosn said.
Mr. Ghosn reiterated that Nissan is open to expanding its alliance with Renault to other car companies, but he said that would happen only if it created value for Renault and Nissan's stakeholders.
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