China economics: wrong numbers - FT.com Unravelling the truth in a country with over 1bn people spanning 10m square kilometres is not easy. Economics in China is particularly knotty. Many trends are overstated. Take end demand for commodities and machinery. Copper imports surged by more than one-half in the first five months of this year, yet industrial production slowed to just 10 per cent. Likewise, soya bean imports were strong yet consumption growth moderated. Why the mixed signals? Because in China almost any good that has monetary value and is not perishable has been used as collateral to secure loans. Traders have then fed those funds into the shadow banking system for higher returns. About 90 per cent of copper held in China's bonded warehouses is used for financial arbitrage, Umetals estimates. It is the same for about 60 per cent of domestic steel sales and a third of palm oil and soya bean imports. Beijing is cracking down by limiting loans to traders and interest rates have fallen, making such carry trades less attractive. The twist, then, is that as China loosens monetary policy, commodities demand in the short term could fall. China's construction machinery makers, such as Zoomlion and Sany Heavy, are in the same boat. Sales have soared despite the slowdown in fixed asset investment. Their cash-strapped customers need machines for collateral to secure funds for working capital. Jefferies notes that about half of Zoomlion's machines sold in the first quarter have never been turned on. There are understatements too. Incomes in China are probably much bigger than official numbers because of untaxed grey incomes. The middle class derive one-third of income beyond wages data from jobs on the side and investments, according to China Confidential. And that proportion rises with wealth. Retail sales statistics underplay the contribution from China's service sector. Numbers aren't always as they seem.