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One of the news events that cut into your Australian Open TV time a couple weeks back was the stellar results on China’s GDP report. According to estimates, China expanded by a whopping 9.8% in the final quarter of 2010. Year-on-year, this translates to a 10.3% growth, equivalent to roughly six trillion dollars. Ka-ching!

Chinese GDP

On the surface, it supported what everybody already suspected- China grew at a worryingly fast pace. If you were to dig deeper into the report, you would find that growth was mostly because of the huge 23.8% uptick in business investment. This is very troublesome because it could lead to the formation of very dangerous asset bubbles in the future.

But get this: China’s growth could actually be much, much larger than what was reported.

In one of the scandalous Wikileaks cables, Li Keqiang, then head of the Communist Party, mentioned in 2007 that Chinese economic figures outside of electricity consumption, rail cargo volume, and bank lending are “for reference only,” most especially the GDP.

Because of the shadows of doubt cast on China’s economic figures, you can see how relying on the latest GDP figures blindly can be problematic.

First of all, a sizable portion of China’s income is actually hidden. Now why would anyone want to hide their income? If you’ve got bling, you ought to flaunt it, right Pip Diddy?! Well, you know as well as I do that people tend to understate their income to avoid paying high taxes. Consequently, this understatement usually results in a lower reported GDP figure.

This isn’t to say that China is the only country guilty of unreported income. Many major economies are unable to report completely accurate income figures, but China’s case may be more extreme than others’. Some estimates even say that the National Bureau of Statistics’ survey could be missing up to 10% of Chinese income!

Also, you have to take into consideration the dollar-yuan exchange rate. If you share the same opinion as countless economic geeks out there, then you believe that the yuan is greatly undervalued.

Many think it could be undervalued by as much as 20%, and that it has only managed to stay low because of the People Bank of China’s “manipulation.” But the problem is, if the yuan is really artificially undervalued, then converting Chinese GDP in yuan to its dollar value would result in a figure that would not faithfully represent China’s growth. It would make GDP seem smaller than it actually is.

Clearly, there’s more to China’s GDP than meets the eye. But instead of being disillusioned by inaccurate data, we should take this as a challenge. It is a challenge to us forex traders and wannabe economists to dig deeper than headline figures to see what’s really driving the economy, because only when we have a thorough understanding of the economy can we really get a sense of where it’s going.