China Blames Lunar New Year for Underwhelming Economic Data

(Bloomberg) -- China’s most important festival is the main culprit behind the underwhelming economic indicators at the start of this year, according to the statistics authority.

The Lunar New Year -- around which many factories and companies shut down -- usually hurts industrial output in the four days ahead of it and 15 to 20 days after it, according to Mao Shengyong, spokesman of the National Bureau of Statistics. The festival was on Feb. 5 this year and thus the effect was concentrated in February, he said.

That compares with the later holiday in 2018, which caused the effect to spill over into March, he argued. Mao mentioned the LNY nearly 30 times during the hour-long briefing on Thursday after the release of economic data for January and February.

None of the under-performing indicators are because the economy is in poor health, but are just seasonal blips, and both investment and consumption will probably improve, Mao said. "We shouldn’t pay too much attention to the short-term fluctuations of economic indicators."

According to Mao:

• The 5.3 percent growth of industrial output would actually have been 6.1 percent once you exclude holiday effects
• Exports would have jumped 7.8 percent, instead of slumping by some 20 percent
• The rise in the surveyed unemployment rate to a two-year high was mainly due to migrant workers flooding back into cities to look for jobs after spending the festival in their hometowns
• The holiday is also to blame for the 3.6 percent fall in property sales
• Retail spending and consumer price increases accelerate ahead of the holiday and slow after it

Economists at China International Capital Corp. developed their own econometric methods to exclude LNY effects, and said both industrial production and retail sales growth were "largely stable" in the two months, economists led by Eva Yi wrote in a note.

Others don’t agree with that assessment.

What Bloomberg’s Economists Say

"While the official statement said the pace was 6.1% when ‘effects of the Chinese New Year holiday were excluded,’ it’s not clear what further adjustment was considered beyond the headline figure, which should have already ironed out volatility that occurs at the start of the year."
-- China economists Chang Shu and David Qu
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Lu Ting at Nomura International Plc argues the data point to a deepening slowdown rather than the calendar effect. In fact, the Jan.-Feb. data may have been flattered by the comparison with 2018, when stronger pollution control measures were in force.

"We expect Beijing to ramp up supportive policies in coming months and still believe deregulating the property markets in big cities is the key to unlocking a growth recovery," Lu wrote.

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger, Enda Curran

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With assistance from Bloomberg