Severity of China slump deeper than data suggests

The government says the economy grew by 6.8 percent in the final quarter of 2008, but that is based on an outdated system that measures growth against the same period a year earlier.

Compared to the previous quarter, the method used by most major economies, growth was about 1 percent at an annual pace and possibly zero, economists say.

“We sharply decelerated in November and December,” said Standard Chartered economist Stephen Green. “There are no clear signals we have accelerated.”

If China's economy is indeed barely growing, that would dash hopes China, the world's third-largest economy, might drive the world out of recession. It also means communist leaders face a tougher challenge than outsiders might think as they scramble to stem a flood of job losses and ignite a recovery.

Other Asian economies such as Japan and South Korea are already contracting. Beijing says there are signs its 4 trillion yuan (US$586 billion) stimulus launched in November is taking effect. But its data might be giving companies and investors an overly positive picture of its current health.

Other countries such as the United States and Japan report gross domestic product growth by comparing each quarter with the previous quarter. That requires more number-crunching to adjust for seasonal differences but quickly reveals changes in performance.

The gap is well known to private sector economists, who try to estimate China's quarter-on-quarter growth based on skimpy government data.

Fourth-quarter expansion from the previous three months was “close to zero,” said Ting Lu, a Merrill Lynch economist. Green said his early estimate showed it was “basically zero,” though he raised that to 1 percent at an annual pace after more calculation. Still, he said, growth was unlikely to revive in the quarter through March.

That would be more in line with indicators that show China's exports and manufacturing shrinking and weakness in investment and consumer spending. The government says at least 20 million migrant workers have lost their jobs.

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