Roubini Sees China Recession Despite ‘Massaged’ GDP

By Michael Patterson

Jan. 22 (Bloomberg) -- China is in a recession despite government statistics today showing the world’s third-largest economy expanded in the fourth quarter from a year earlier, according to Nouriel Roubini, the New York University professor who predicted last year’s economic crisis.

“China is in a recession regardless of what the highly massaged official numbers claim,” Roubini, a professor at NYU’s Stern School of Business and the chairman of consulting firm Roubini Global Economics, wrote in a note today on his Web site. “When growth is slowing down sharply the Chinese way to measure GDP is highly misleading.”

Unlike the U.S. and western Europe, China’s figures on gross domestic product measure growth from the same quarter a year ago rather than the previous three months. The year-on-year figures fail to capture the economy’s slowdown at the end of 2008 because growth was so high in the preceding quarters, Roubini wrote.

The government’s statistics bureau said fourth-quarter GDP grew 6.8 percent from a year earlier, after gains of at least 9 percent in the previous three quarters.

China’s stocks rose to a one-month high after the GDP figure matched the median estimate of economists surveyed by Bloomberg News. Health-care stocks including North China Pharmaceutical Co. climbed after the government said it will spend 850 billion yuan ($124 billion) to help expand medical care. The CSI 300 Index rose 1.1 percent to 2,044.55, the highest close since Dec. 19.

Falling Exports

Investors should buy China’s agriculture, water treatment, power generation and infrastructure stocks because the companies won’t be hurt by the nation’s slowing economy, investor Jim Rogers said in an interview today.

“There is a lot happening in China and there will be those that will hold up well,” said Rogers, who correctly predicted the start of the commodities rally in 1999 and wrote books on investing including “A Bull in China: Investing Profitably in the World’s Greatest Market.”

Declining power output and shrinking manufacturing suggest the economy is contracting, Roubini wrote.

China’s electricity production declined more than 7 percent from a year earlier in November and fell about 3 percent in October, the first declines since February 2002, according to China Economic Information Net data compiled by Bloomberg. China’s exports fell 2.8 percent in December, the most in almost a decade, as the deepening global recession cut demand for the nation’s toys, clothes and electronics.

Roubini said at a conference in Dubai this week that U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent.” He also predicted oil prices will trade between $30 and $40 a barrel all year.

Roubini wasn’t immediately available to comment on the report, his spokesman said.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.