How to (almost) understand China's quarterly GDP growth rate China's Q3 GDP data is out on Thursday, and there's naturally a lot of speculation about whether it will show yet another quarter of declining growth (almost certainly) and whether it will even fall below the official 7.5 per cent target, as economists are expecting. Last quarter was 7.6 per cent so falling below the target seems quite possible given that there has been little sign of improvement throughout the period. Tomorrow, expect to hear a refrain along the lines of: "yes, but 7.x per cent [or whatever tomorrow's number is] is still a very enviable growth rate for almost any economy." Which is perfectly true. But the quarterly GDP data provided by China's National Bureau of Statistics is not quite suitable for an apples-for-apples comparison with most other countries. Most countries report their headline quarterly GDP figure as a sequential rather than a year-on-year figure. That is, most show the growth rate over the previous quarter. An annualised version of the quarter-on-quarter rate is also usually provided for easy comparison to how the country's growth is tracking against historical rates. China, however, publishes its quarter data as a simple year-on-year figure. Or it did until 2011, when it began to also offer a quarter-on-quarter figure. There are two particularly interesting things about the provided figures, which Patrick Chovanec, a professor at Tsinghua University, pointed this out on the Chinapol mailing list last month. Firstly, the quarter-on-quarter figure provided by the NBS is seasonally-adjusted but it is not annualised. For this reason, says Chovanec, economists and reporters tend to ignore the number because it can't be easily compared to the quarter-on-quarter figures provided in other countries. Instead they focus on the more prominently-presented year-on-year quarterly growth figure - because even though it can't be compared directly with other countries, it can at least be described accurately and it avoids the complications of seasonal adjustment. Plus, the year-on-year figure is how China has presented its quarterly growth rates for many years, so it's a straight forward way of identifying trends. However, Chovanec points out that if one does annualise the seasonally-adjusted quarter-on-quarter rate the NBS supplies you can get quite a different rate to the year-on-year number. For the first quarter of this year, that supplied quarter-on-quarter figure was 1.8 per cent. Annualising it gives a rate of 7.4 per cent - meaning Q1 growth was already below the 7.5 per cent target rate, and well below the 8.1 per cent year-on-year figure that was commonly cited for China's Q1 2012 growth. Then, in the second quarter, it got a little weirder. Here's Chovanec (our emphasis): Many people, including myself, expected the QoQ GDP growth for Q2 to fall, consistent with what we were seeing happen in the monthly data sets, corporate earnings, anecdotal stories, etc. The YoY figure did fall, from 8.1% in Q1 to 7.6%, still above Premier Wen's target. But what happened to the QoQ figure was a little tricky. NBS reported the QoQ GDP growth rate for Q2 apparently unchanged at 1.8% (or 7.4% annualized). In a tiny footnote, hidden away and never discussed, it revised the QoQ growth rate for Q1 down to 1.6%, meaning that the Chinese economy grew by just 6.6% in Q1. It does not appear that they revised the YoY figure for Q1 downwards, or at least they didn't tell anyone about it. The footnote appeared in the Mandarin version of the NBS data, but you can see on the English language pages that a change occurred - just compare the first quarter and second quarter pages. Or compare the screenshots below. Q1, as reported after Q1: .. versus Q1, as reported after Q2: Chovanec again: Nor did they offer any explanation of how YoY GDP growth fell from Q1 to Q2, but QoQ growth rose (one might assume it had something to do with seasonal adjustment, but even so, it sort of demands an explanation). The problem is, with the NBS" seasonal adjustment methodology remaining opaque, there is no way of working it out. Plus, these quiet revisions to earlier QoQ rates keep happening. Do some comparisons yourself on the NBS website and you'll see how, for example, Q1 2011 was 2.1 per cent... until the 2012 Q1 data was published, when it moved up to 2.2 per cent. If you know what's behind these revisions - or have an educated guess - do fill us in... At any rate, there's a pretty good argument that China's growth has already fallen below 7 per cent per annum. It just might not stay that way. Related links: What to make of the latest round of Chinese data - FT Alphaville Does the world really need China's rapid economic growth? - FT Alphaville