Are China's national accounts accurate, or is it manufacturing GDP statistics in order to support the idea that it is floating above the global recession? The latter is admittedly the most extreme explanation to the questions that credible sources are raising concerning the legitimacy of China's GDP data. Whatever the explanation, these questions have troubling implications for U.S. investors.

In its Oil Market Report of May 14, the International Energy Agency noted that China's reported growth in real GDP for the first quarter -- 6.1% -- is inconsistent with its demand for electricity and oil during the same period, with the latter declining 3.5% year on year.

Your sums don't add up
Yesterday, the Financial Times pointed out that summing the first half GDP numbers from China's 31 provinces and municipalities produces an aggregate that is 10% higher than the national GDP figure published by the central government, raising fresh doubts about the quality of China's statistical apparatus.

The conundrum of Chinese GDP could ultimately have consequences beyond Chinese stocks (some of which have enjoyed spectacular returns this year -- see table below) or even companies that are active in China such as Coca-Cola (NYSE: KO), General Electric (NYSE: GE), or Procter & Gamble (NYSE: PG).

Year-to-Date % Return

Price-to-Earnings Ratio*

Baidu (Nasdaq: BIDU)

169%

39.0

Suntech Power (NYSE: STP)

76%

28.0

Shanda Interactive (Nasdaq: SNDA)

56% Continued...