China’s miracle economy has a secret ingredient: cooked GDP books
- Why fear not making good that pledge about doubling the size of the economy when the figures can simply be massaged into place?
Perhaps the move should come as no real surprise. After all, other countries have done similar things in the past, though in China particularly it appears to be something of a habit. Beijing also revised up its GDP after its three previous censuses: by 16.8 per cent in 2004, 4.4 per cent in 2008, and 3.4 per cent in 2013. The revision in 2004 was helpful from a PR point of view, as it helped catapult China past Italy as the world’s sixth-largest economy. (The legacy effect was felt as China bypassed France in 2005, Britain in 2006, Germany in 2007 and Japan in 2010).
The latest change, claims the bureau, will not significantly influence the calculation for the 2019 growth rate. However, after the 2013 census, the bureau raised aggregate actual GDP growth from 2005 to 2013 by 1.05 percentage points.
The big issue here is that the bureau’s latest revision will have a very real impact on Beijing’s efforts to realise a goal of utmost political importance: its target of doubling the size of its economy between 2010 and 2020. Before the revision, it had seemed it might miss this highly symbolic target. To accomplish its 10-year programme, the government needs to achieve about 6.2 per cent annual growth in GDP both this year and next.
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The economy’s downward trend has become more noticeable following a decade-long slowdown in growth. The economy decelerated at a quarterly rate of 0.2 percentage point this year, from 6.4 per cent in the first quarter, 6.2 per cent in the second and 6.0 per cent in the third – the weakest since 1992, when the government began to release such data. Growth is expected to dip beneath the psychologically important mark of 6 per cent for the last quarter of this year and all of next year.
But the move by the bureau to revise up GDP by 2.1 per cent means Beijing can now achieve its goal even with a much lower growth rate over the remaining five quarters.
This is why many foreign economists are questioning the political motivation behind the revision. Many believe the bureau has given in to political pressure to massage its figures.
A POOR RECORD
Such suspicions are inevitable, given China’s poor record when it comes to statistics. Cases abound in which local officials – who are often judged on the economic performance of their locale – have cooked the books to gain politically.
Even the former and current Chinese premiers Zhu Rongji and Li Keqiang have in the past dismissed statistics as “man made”. Zhu once spoke of a “wind of embellishment and falsification” blowing throughout China’s statistical system. Li, when he was party chief of Liaoning province, even invented his own “Li Keqiang Index” to measure economic performance, forgoing official figures for bank lending levels, rail freight volumes and electricity production as proxies for growth.
American economist Thomas Rawski has become famous for using energy consumption to track Chinese GDP growth. In his research between 1997 and 2000, he noted a massive discrepancy between the two: China’s GDP growth was supposedly 24.7 per cent, though its energy consumption had fallen by 12.8 per cent. More recently, Liaoning province, Tianjin municipality and the Inner Mongolia autonomous region have admitted fiddling with data between 2017 and 2018.
Of course, the statistics bureau knows all too well the tendency of local governments to overstate their achievements and often makes allowances. It is now routine that the national GDP figure is less than the aggregate of the local governments’ numbers; in 2015, the bureau reported a national GDP of US$10.4 trillion, about 7 per cent less than the sum of the provincial numbers.
Xiang Songzuo, an outspoken critic of official data, recently suggested Beijing had overstated GDP growth this year. He noted fiscal revenue had grown only 3 per cent, while corporate profits had fallen 1.7 per cent between January and August.
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But the bureau has made some progress in overhauling its methodologies and stripping out local exaggerations. Still, confusions and inconsistencies in the system abound. In particular, the speed and uniformity of Chinese data have given rise to scepticism. China releases its economic data faster than any other economy, despite being the most populous nation. Its GDP figures are released just 12 days after the end of each quarter – and are often leaked even earlier. In contrast, the US takes four weeks to release quarterly GDP data.
The stability of China’s figures through good times and bad also gives rise to disbelief. In free-market economies, the figures bounce around from quarter to quarter, but China’s always follow a strangely smooth trajectory. The average change remains within a margin of 0.2 percentage point every quarter, less than half the average for the US. Growth of the world’s largest economy this year changed from 3.1 per cent in the first quarter to 2 per cent in the second and 2.1 in the third.
Lack of transparency in data collection is also a factor. Neither Chinese academics nor foreign researchers can double-check the accuracy of the official statistics due to limitations of publicly available data. If Beijing wants to allay such concerns, it must be more open about how data is collected and how it finalises the figures. The most challenging task is how to eliminate the political incentives to manipulate the data. This is especially so at the top levels of government where national leaders, whose credibility is tied up with economic performance, are also in charge of the statistics agency.
Cary Huang is a veteran China affairs columnist, having written on the topic since the early 1990s
