• The Philippines needs a Keqiang Index

    Ben D. Kritz

    Ben D. Kritz

    LI Keqiang is the Premier of China, but he is enjoying a specific kind of popularity in India lately, as an article from Bloomberg explained earlier this week.

    Puzzled by GDP growth figures that seemed unusually rosy, Ambit Capital, a major Indian brokerage, launched a version of a Keqiang Index for India, and discovered that India’s supposedly world-leading growth in the third quarter was probably significantly lower than reported, and that it had slowed rather than accelerated from a quarter earlier.

    The term “Keqiang index” was coined by The Economist back in 2010, after a diplomatic memo released by Wikileaks detailed a conversation between the US ambassador to China and Li, who was then the head of Liaoning Province; to better track his province’s economic performance, Li had told the ambassador, he monitored electricity consumption, rail cargo volumes, and bank lending. When applied to China generally, the index seemed to match observations better than official growth data did, or in other words, appeared to confirm what everyone suspected – that China’s growth was slowing – long before that was reflected in the official GDP figures.

    The original index has largely been discredited, because the three specific indicators watched by Li are not always the most illustrative ones for a particular economy; they worked well for Liaoning, but were inadequate in places where, for instance, services dominate the economy. Hence the term “Keqiang index” has come to mean any alternative growth-tracking index. The index developed by Ambit comprises motor vehicles sales, electric consumption, capital goods imports, and cargo handled at airports; the brokerage firm explained that it calls it a Keqiang index because “the name is easy for investors to remember,” according to the Bloomberg report.

    Using its index, Ambit has found that Indian growth has been overstated by the official calculation, which since the beginning of this year has been done according to an updated methodology. Instead of accelerating to 7.4 percent GDP growth in Q3 from 7 percent in the previous quarter, Ambit’s index shows the Indian economy slowing to 6 percent from 6.3 percent.

    It is very likely that if a similar index was developed for the Philippines, it would paint a much less attractive picture than official GDP data. What indicators should be included, however, is subject to some debate. As a conversation started, I might suggest real estate lending, vehicle sales, capital goods imports, and the volume of production index (VoPI).

    What that really illustrates, however, is the overall unreliability of any one method of assessing economic data; by grouping indicators in different ways, completely different conclusions can be drawn about the health of the economy. To get the most accurate picture, official GDP data should be compared to the Keqiang index, or even better, more than one.

    * * *

    Also in Bloomberg this week was an article that falls into the “good idea if they’re actually serious” category: The announcement, via the Bases Conversion and Development Authority (BCDA), of the development of a “backup capital” at Clark in Pampanga; according to BCDA president Arnel Casanova, government agencies and the central bank were asked in September to work on plans for business continuity facilities in Clark, and that space would be provided for the Treasury and the stock and securities exchanges as well. And of course, Casanova also mentioned the popular but at this point, largely mythical, idea of connecting the area to Metro Manila via a new railway.

    With only a few months left in the Aquino Administration’s term (time that cannot possibly pass too quickly, in this writer’s opinion), it is doubtful the idea will ever manifest itself in any more tangible form than as the subject of a few memos, but it is actually an appealing prospect. One of the many things that hinder the efficiency of government operations in this highly centralized system is the haphazard organization of the physical facilities needed to carry it out. These facilities are spread out apparently at random – being located according to a succession of “master plans” throughout history – across several cities in a metropolis that is becoming increasingly difficult to move around in. Concentrating most of the country’s administrative functions in one place away from Metro Manila would not only improve productivity and working conditions (the government is the country’s largest employer, and is likely to continue to be for the next century or so), but would spur a development boom in the Clark area as well. That is important not so much for the benefits it would bring that area (which would be enormous), but for the prospects of helping to legitimately decongest Metro Manila. The next Administration – provided the Philippine electorate can form enough of a collectively rational thought to elect a leader who is at least somewhat more concerned about getting some work done than challenging someone else to a slap/fist/gun fight—should keep the idea in mind, and try to develop it.



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    1. Lorenzo Hernandez on

      I disagree with your components for a potential Pinoy Keqiang index. 3 out of the 4 you mentioned are industrial indicators but the Philippine economy is 70% consumption driven and heavy on services. Therefore, your indicators should be weighted toward those that reveal how healthy consumer spending and the services sector are. I nominate the following:

      1. Jollibee same store sales growth
      2. Petron’s retail volume growth
      3. Tourist arrivals growth
      4. Growth in BPO revenues/headcount
      5. Hospital revenue growth
      6. Car/motorcycle sales growth

      • The Philippines should not be 70% consumption-driven, which should be obvious enough from the now decades-long persistence of poverty and GINI indicators. As it is, my selected indicators are half-and-half, not particularly weighted towards one or the other; not having an industrial economy to speak of, I think one could hardly mistake vehicle sales or real estate lending as industrial indicators — the other two, of course, specifically are.