If there's one thing I can remember from my accounting days it's that data recorded 16 days after a period end can be very rubbery, sometimes referred to as a 'soft close'.
I'd classify myself as a China sceptic rather than bearish - aside from one visit to Macau I've barely seen any of China and hardly know enough about to form an opinion worthy of the name...not that ever stops some people! Clearly there are genuine risks around the use or misuse of credit.
China GDP for sceptics
Auditors are often tasked with considering alternative ways to substantiate revenues or account balances rather than merely blindly ticking invoices or underlying documentation.
Rather than checking back to invoices and reconciling the sub-ledgers, an audit firm might choose to write letters to third party debtors asking them to confirm outstanding balances independently, known in the auditing practice as a debtors' circularisation.
When auditors stop applyinh professional scepticism and accept accounts data at face value, the audit process breaks down and its value is immediately diminished.
However, one thing that we can do is to compare bilateral trade data, such as, for example, checking off China's reported exports figures with Hong Kong's imports data to ensure that the two figures can be reconciled.
This particular "smell test" has repeatedly shown there to be quite a mismatch indicating that China has been indulging in the underhand practice of fake invoicing in order to meet trade and growth targets.
Yet by Q1 2013 the ratio of China exports to Hong Kong imports had become ridiculously skewed, always in favour of overstating China's exports, with the high point an almost comically high ratio of 2.36 to 1.
Other proxies for China GDP?
You may not believe it is correct, but how can that ever be substantiated?
Obviously we can't go back and re-test every transaction which makes up China's economic growth, even if we wanted to.
One worthy idea is to look at the rate of electricity output growth as a proxy for China's economic growth.
In the event, China's electricity output has declined from nearly 8% per annum back in early 2012, to only 5.70% y/y as at June 2014.
That suggests that the headline economic growth of 7.5% may indeed be well overstated.