Premier Li Keqiang

By statistical elimination, most senior leaders in China have to be very smart these days to get to where they are.  Li Keqiang is known to be, not only very smart, but also very street-wise.  For example, in a recent visit to a public housing project to inspect the occupancy rates and living conditions, he swept around the corner and peeked into the garbage bins and made a comment about the standard of living (judging from the food and household rubbish).

The so-called Li Index is simply the use of what we call “independent corroborative evidence (or ICE)” in due diligence.  Because China’s economy is still mostly in the real sector, electricity consumption and transportation rates are good ICE.  During the post-2008 government spending boost, credit drawdown was temporarily a strong short-term ICE.  That’s why Santelli’s interpretation that the Li Index indicated a 2% actual growth rate is incorrect because the recent temporary credit crunch posted a distortion.  According to FT, using a 5-year analysis, the Li Index generally coroborated the official GDP figure, while exhibiting a higher girating volatility (which is closer to reality).  As the structure of the Chinese economy changes over time, the applicable ICE will also have to be modified accordingly.  Li doesn’t use the official government figures because they are not good enough for reacting quickly to changed economic conditions.  Government figures tend to be smoothed and massaged, and seasonally adjusted to tell a more stable story.

Likewise, our Federal Reserve also tend to smooth the figures and lead people to look at numbers that fit the story, while acting to preempt the real possibilities.

Where we live is close to where at least 1/2 of China’s exports are shipped to the rest of the world.  I also have an exclusive World

Economic Recovery ICE — it is based on the number of polluted vs non-polluted days.  Judging from the uncharacteristic bright blue skies recently, I can tell you that the world economic recovery is currently “sluggish”.

– doublewood

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