China economy

Chinese local governments accused of faking economic data

Latest audit uncovers evidence that some officials have inflated revenues

PUBLISHED : Saturday, 09 December, 2017, 7:03pm
UPDATED : Saturday, 09 December, 2017, 8:21pm

Chinese local governments have been accused of faking economic data following the latest round of nationwide audits that found evidence revenues had been inflated and the extent of their debts had been downplayed,

The National Audit Office (NAO) said on Friday that 10 city or county governments had been found to be inflating their fiscal revenue by a total of 1.5 billion yuan in an audit conducted in the third quarter.

For example, the report published on the NAO’s website accused Wangcheng district in Changsha, the capital of the central province of Hunan, of faking the ownership transfer of local government buildings to increase local fees revenue by 1.2 billion yuan (US$181 million).

In another case, six counties in Jilin province listed 110 million yuan in project funding and hospital revenue as revenue from administrative fees.

They were also accused of an accounting sleight of hand whereby fiscal capital was allocated to some departments to pay arable land occupation tax in advance, thereby artificially increasing the revenue on their books.

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The accuracy of China’s economic data has long been questioned because the combined growth in gross domestic product from all the country’s provinces is usually much larger than the national figure.

The GDP growth rate has been consistently recorded at around 6.7-6.9 per cent over many quarters, which has raised questions about whether such little variation is really possible.

Liaoning, which reported an unusual 2.5 per cent unusual drop in gross domestic product last year, admitted cooking its books earlier this year after its party boss Wang Min was placed under investigation by the anti-corruption agency.

The rust belt province in northeast China was found to have faked fiscal data through transaction item forgery, tax refunds and taxation calendar adjustments between 2011-2014, the official Xinhua News Agency reported in January, citing an official from the Ministry of Finance.

The central authorities have promised to reform the statistics system by directly collecting and calculating GDP from 2019. They also have also started to play down the headline growth figure, a key incentive for local data forgery.

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The national auditor also found five city or county governments in Jiangxi, Shaanxi, Gansu, Hunan and Hainan provinces had shouldered 6.4 billion yuan of debt through financial guarantees – a practice that has been banned by the central authorities.

The Chinese finance ministry named and shamed a few local governments for their wrongdoing earlier this year.

It has repeatedly said that local government debt, which now totals about 16 trillion yuan, is controllable and can be repaid by existing assets.

Major rating agencies such as Moody’s and S&P are more worried about implicit debt, which is used to fund local economic growth, and downgraded China’s sovereign credit earlier this year on that concern.

Beijing has conducted quarterly audits of selected regions and departments to ensure its policies and directives are thoroughly implemented at a grass roots level.

The auditor looked into the accounting books of 1,343 units nationwide in the past quarter, involving public funds of 442 billion yuan, 27.8 billion of which are from central coffer.

It was the first time this year that evidence of data forgery and illegal debt raising were discovered.

Special attention was paid to risk prevention, poverty reduction and pollution control, the three major economic tasks set by the 25-member Politburo for 2018.