Now, China must come clean about its national economic data
Tom Rafferty welcomes the recent admissions by Chinese regional officials that figures were inflated in the past, but says the crackdown needs to be even more rigorous to include national-level data
China’s provinces have started to admit they have been exaggerating economic data. These confessions are welcome in that they get us closer to a truer understanding of the health of the Chinese economy. However, there are reasons to doubt how thoroughly the data cleaning will be implemented and whether the central authorities will – as they should – also concede to problems with the national-level figures.
The admission of data falsification by Liaoning last year and in recent weeks by Inner Mongolia and Tianjin will have come as little surprise for observers of China’s economy. Suspicions have been cast for years on the veracity of local economic data, with the evaluation system for regional officials having provided them with powerful incentives to present polished figures. Punishments for data manipulation under Chinese law are light and rarely enforced.
The scale of the revisions is nevertheless revealing. Liaoning acknowledged inflating fiscal data by an average of 20 per cent a year in 2011-14, while coal-rich Inner Mongolia has reduced the 2016 figures it previously published for fiscal revenue and industrial output by 25 per cent and 40 per cent respectively.
Tianjin went further still, with its main development zone slashing its previously reported gross domestic product for 2016 by one-third. This shows the extraordinary growth rates recorded by Tianjin in recent years – real GDP rose by an average of 14 per cent a year in 2002-16, propelling it to the highest GDP per capita in the country – to have been at least partially illusory.
Others among China’s 31 provinces and regions on the mainland are likely to follow suit.
Driving the crackdown on local data inflation is Beijing’s desire to have more accurate figures to shape economic policy decision-making. The persistent gap between the national GDP figure and the aggregate figure for provincial GDP has also become an embarrassment. It stood at the equivalent of US$500 billion in 2016, around the size of Sweden’s economy. China’s National Bureau of Statistics has committed to closing the gap by 2019.
The data revisions raise several important issues. Clearly they will prompt a radical reassessment of the health of the provinces concerned. Important risk metrics, such as debt-to-GDP ratios, will deteriorate as a result of the revisions, potentially affecting the ability of provincial governments to raise funds for development projects. Inner Mongolia’s cancellation of several subway projects was no doubt linked to the reappraisal of its fiscal health.
The revelations also raise questions about how far the revisions will spread. The provinces that have admitted to data falsification have each been targeted under President Xi Jinping’s anti-graft campaign. The new political leaders installed in these regions have thus been given an ideal opportunity to “come clean”, safe in the knowledge that the fabricated data can be attributed to their predecessors. Provinces less disrupted by the corruption campaign may be less likely to restate their statistics.
Recent admissions also raise questions about the reliability of national-level economic figures. So far, the National Bureau of Statistics has dismissed the notion of leakage from exaggerated regional data, highlighting its reliance on a central reporting system that bypasses regional authorities for at least some of the indicators. However, the central system does appear to be vulnerable to the same sort of embellishment that has occurred at the provincial level, given a similar political incentive to ensure GDP growth targets are met.
There remains much to be done if we are to have a proper accounting of China’s economy. Unfortunately, with the government apparently set on achieving the ambitious target of delivering at least 6.5 per cent real GDP growth a year on average from 2016-20, the politics that surround the headline national figures are unlikely to go away. Blaming a few provincial authorities for false data, while denying any problem with the equivalent national figures, is unlikely to prove a distinction that will stand up for long.
Tom Rafferty is regional manager, China, for the Economist Intelligence Unit (EIU)