The Reliability of Chinese GDP: Measuring Underlying Business Activity with Static Factor Models

Abstract

Skepticism over the validity of o cial Chinese GDP gures has been widespread among the media, investment professionals, and academic researchers in recent years. This study seeks to rigorously analyze the basis for such claims by performing static factor analysis with estimated idiosyncratic components on various Chinese macroeconomic time series. We examine the data at three timescales: log-levels, annual growth rates, and quarterly growth rates. Our results indicate that the reliability of published GDP for measuring underlying business activity depends signi cantly on the time frame - GDP is highly relevant for long time horizons, which include the log-levels and annual growth rates, but is much less relevant for the short-term, which includes quarterly growth rates.