Too True to be Good?

China, really, who knows?  There are two points of view.  At the risk of over-simplification, they are:

SINOPHILE:  China is a huge resource of both labor and consumers.  The country's in a great growth spurt for modernization and productivity improvements.  The government seems to manage everything just right to maintain excellent economic growth year after year.  China didn't even pause for the Credit Crisis.

SINOPHOBE:  The ideas don't fly and the numbers don't add.  With no respect for intellectual property and a long trail of economic data reminiscent of Bernie Madoff's investment returns, the China story can only have an ugly ending.  Communism cannot beget the free flow of innovation, capital, risk, and prosperity.

With the recent news that the Chinese government has permitted the debt default of Chaori Solar, both the PHILEs and the PHOBEs have another data point.  The former will appreciate the increasing Westernization of the Chinese corporate market.  The latter will believe the dam is about to break to reveal to the world a deluge of negative financial tidings.

It's rhetorically convenient in an article of this type to stake out a position somewhere in the middle.  But no!  That's not how FinancialPests operate!  We've planted our flag in one of these camps.  Let us conclude with this quote from the GARP News article:

"[T]he ruling Communist Party has pledged to make the economy more productive by allowing market forces a bigger role."

Whether it's ideas that don't add, numbers that don't fly, or historians who don't believe what they're reading, something's not right here.  In agreement with Shakespeare, we say time will tell.  Give it ten years - to 2024, say.  The current "China Model" will prove itself false.

Bad Test for Phony Data ?

Just over a year ago came the news that researchers applied "Benford's Law" to show that GDP data from China is likely fraudulent.  That's a huge finding!

                            BUT WE FIND THIS TEST TO BE UNRELIABLE

See above a graph that demonstrates BOTH the USA and China fail "Benford's Law" for GDP data from 1961 through 2012.  A conventional "Chi Square" test shows that both the USA and China data fail to obey Benford's Law at a confidence level higher than 95%.

What we call Benford's Law states that the first digits of a collection of numerical data will follow a known and non-intuitive pattern UNDER THE RIGHT CIRCUMSTANCES.  (See this link for a good discussion.)

But GDP % Change over time is not a data collection that typically satisfies criteria for Benford's Law to be relevant.  In fact, Benford's Law is often mis-used.

LINK TO WORLD BANK DATA SOURCE