Note the wording Goldman used in describing the implications of the decline in income tax revenues in China, via Bloomberg (hat tip reader MIchael):
“Tax data show much sharper deceleration in income and consumption in the past few months than suggested by official retail sales or income growth figures,” Goldman Sachs analysts Joshua Lu, Caroline Li and Fiona Lau wrote in a note today.
Value-added tax has “de-linked sharply” from retail sales figures, the analysts wrote. VAT rose 1 percent in the fourth quarter from a year earlier, while retail sales gained 21 percent, according to the note….
Growth in China’s individual income-tax receipts “slowed down significantly” in the second half and shrank in December and January, the Goldman Sachs analysts wrote. This compares with nominal wage growth of 21 percent in the third quarter, the report said.
One obviously has to tread carefully when pointing out official data looks to be cooked.
In the 1930s the idea of frugality and thrift was still in the living memory of most Americans who lived thought the roaring 20s, the same is true for many Chinese today.
For westerners to expect Chinese to spend money in an economic downturn because of some patriotic duty is kind of silly. Chinese are loyal only to their families and will cut back spending much faster then those of us in the west who have become accustomed to all the unessential services and goods we’ve spent our entire lives surrounded by. They are not as easy to con with vague speeches about hope and change.
Oh and I forgot to mention that China is experiencing drought conditions…
VAT and reported retail sales growth diverging is interesting.
Wonder if government entities or others are exempt from the tax?
As for the income tax, very few people in China are subject to it because it require relatively high incomes to trigger it.
Therefore, more than likely, there is not as much fudging involved.
The data on electricity generation, etc. are generally regarded as pretty solid.
It does seem odd that China is supposedly in placid waters when Japan and Korea are being capsized by huge seas.
Just how important is the grey or black economy in China?
If I were to wager a guess, the grey economy is huge:
Many of the illegal migrants (from other provinces) work without permits, pay no taxes, etc. From street side vendors to domestic help, they quietly help the economy grind along.
There is an entire shadow financial system, a huge business smuggling goods and money in and out, illegal buses, taxis, etc.
Bribes and payoffs, etc.
This is helped by the fact that the economy is overwhelmingly based on cash, and little policing and crackdowns on illicitly obtained wealth have happened.
The severe recession is far more severe in the underground economy than it is in the normal economy, with the exception of the “flight” capital business, which is booming.
Yves – while Chinese figures are more likely to be manipulated than not from the lowest level to the highest – truth is not impossible to come by for those who do it the old fashioned way: on site inspections.
Enjoy your blog immensely – please keep up the great work.