Arithmetic with Chinese characteristics, where the sum of the parts is greater than the whole
The Binhai New Area in the northern city of Tianjin – an economic zone that sparked talk of grand ambitions to create China’s answer to Manhattan from a riverside swamp – raised eyebrows this month when it announced that its GDP growth in 2016 was a third smaller than it previously stated.
-- SCMP, January 17
China is a land where the sum of the parts is greater than the whole. Binhai is not alone in puffing up its figures. Every province does it, I think, and every county.
For instance, the record shows a national gross domestic product (GDP) in 2016 of 74.3 trillion yuan (US$11.6 trillion). Add up the GDP figures for each of the provinces, however, and you get 78 trillion yuan.
The phenomenon also shows up in the published growth rates. As the first chart shows, the weighted real growth rate (2014 nominal GDP weights for those of you technically minded) of the provinces combined is consistently and significantly higher than the national figure.
In fact, there were years in which every province posted a higher growth rate than the national one. Growth is the provincial governor’s report card. Show a lower figure and someone will say “Hey what’s wrong with you? Do we need a new hand at the wheel?”
But three provinces were under the mark in 2016 and one governor surely tempted fate. Liaoning province reported a negative growth rate of 2.5 per cent. The last year any province dared report negative figures was 1991 when Anhui did it.
Then again, Liaoning is classic rust belt territory and, if all the emphasis is now to be on the clean, bright, new economy, perhaps the governor of Liaoning can be excused for conceding that his bailiwick is dirty, dull, old economy.
Things get even more interesting, however, when you look more closely at the provincial economies. We shall take Guangdong as an example. First take the reported provincial growth rate, then calculate a weighted growth rate for all the counties and you get the second chart.
Yes indeed, the story is the same as at the national level. The sum of the provincial parts is greater than the provincial whole.
Of course, it looks as silly from the viewpoint of Beijing as it does from anywhere. Provincial and county officials are occasionally admonished to show more honesty.
What they then do is go back and revise their historical GDP figures, that is to say, the figures 10 years and more out of date. No one cares about these any longer, and thus they can safely be taken way down.
The result is magic. The older figures now show the sum of the parts as less than the whole although the growth rates (which remain unchanged) are still greater than the whole.
I have an idea for Binhai. Don’t measure the GDP of your “new area” as a whole. Do it by the individual neighbourhood and then add all the figures up. Better yet, do it by the street or even the individual household.
At each stage, you can make the sum of the parts greater than the whole and then you won’t have a shortfall any longer. What fun!