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What satellite images reveal about China’s economy

What satellite images reveal about China’s economy

Chinese economic data has a bad reputation for accuracy, and it’s often said to be overstated as China’s government, particularly at the provincial level, tries to burnish its reputation.

But three economists, including two from the New York Fed, say the problem may actually be the opposite — that official Chinese economic data understates performance from the world’s second-largest economy.

The research paper, from the New York Fed’s Hunter Clark and Maxim Pinkovskiy, as well as Columbia’s Xavier Sala-i-Martin, flies in the face of conventional wisdom. And the authors rely on an unusual indicator to measure Chinese performance — satellite-recorded nighttime lights.

Data on nighttime lights is publicly available, as it’s maintained by the National Oceanic and Atmospheric Administration. Other studies have pointed out the power of nighttime lights as a proxy for economic performance, for example by looking at the difference between North and South Korea, a sample of African villages as well as the fluctuations during the Asian financial crisis. Lights are very strongly correlated with measures of economic activity both in terms of levels and growth rates, they say.

The findings suggest the Chinese economy is doing well. “We see that our methodology predicts Chinese [gross domestic product] growth to have been lower than official estimates before the crisis of 2008, to have experienced a shallower decline in 2008 and a stronger recovery in 2009 and 2010, and to have stabilized at a higher level after 2011,” they said.

They aren’t sure why China would understate its own performance. But they say it could be that Chinese national accounts understate the growth rate of services, which would increasingly matter as that country’s economy develops.

As a working paper, it has not been peer reviewed.
SOURCE: Market Watch



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