On May 3, the Ernst & Young accounting firm released a report saying that the total value of "non-performing loans" on the books at Chinese banks was $900 billion. This was an eye-opener, as the official government figure was $133 billion. If the Ernst & Young figures are correct, that's quite a lot of cash those banks will never see again.
A few days later, a statement from the People's Bank of China said that the report was "ridiculous and incomprehensible." Presto: On Friday, Ernst & Young suddenly declared that its numbers were not correct, and retracted the report.
The Sino-blogosphere has, for the most part, scoffed at the idea that Ernst & Young independently discovered such a huge error all by its lonesome. The much more obvious explanation is that pressure from the Chinese government led to the embarrassing retraction. Ernst & Young just happens to be the auditor for one of the four state-owned banks labeled in the report. Put two and two together, say China watchers, and you get some 800 billion subtracted from the total. For Ernst & Young, it's a no-win situation -- either the accountant was incompetent enough to botch a major report, which might be possible, or it was callow enough to claim it goofed in order to keep its China business.
Meanwhile, in other news, Bloomberg reports that the yuan broke through the symbolically important eight-to-the-dollar threshold, just a a couple of days after the U.S. Treasury Department determined that there was no evidence proving that China was manipulating the value of its currency. "The Treasury report was well received by China and the break of 8 is probably a thank-you for that," said Sean Callow, a currency strategist at Westpac Banking Corp. in Singapore, according to Bloomberg.
From a strictly "efficient markets depend on good information" point of view, the funny numbers from China are bad news. Many economists and market analysts are already suspicious of the economic statistics the Chinese government supplied; the juxtaposition of the Ernst retraction with the seemingly obvious manipulation of the yuan does not inspire confidence. China's government threatens to punish those who embarrass it, and rewards those who allow it to save face.
If one were cynical, one could say, hey, is the American government any different? The current administration is notorious for attempting to manipulate scientific and economic data in support of its own policies. But two wrongs don't make a right. We live, we are told, in the information age. Too bad we can't trust anybody's numbers.