Asia Times: China's GDP figures: Are they bogus?

In what has become an annual ritual, the chief of China's National Bureau of Statistics on December 30 released figures showing the country's economy had grown by 8 percent in 2002, "helped by strong investments, robust demand for exports and healthy growth in industrial output".

However, in yet another annual ritual, the event was greeted with skepticism from economists, who have learned to respond to the release of gross domestic product (GDP) figures from China with doubt, uncertainty and sometimes outright disbelief. It is impossible to calculate true GDP expansion without complete access to growth statistics across the entire country in a wide variety of segments of the economy. Even in industrialized countries such as the Group of Seven (G7) nations, it can take months to arrive at true GDP growth.

Indeed, shortly after China had released its GDP figures for 2002, Qu Hongbin, a senior economist for Hong Kong Shanghai Banking Corporation (HSBC) Securities in Hong Kong, wrote: "We suspect that certain local officials may have seriously overstated fixed-asset investment in their areas to boost their political credibility."

Qu wrote, "analysts can still reach useful conclusions by focusing on trends rather than exact amounts in the official figures. Sometimes, however, the problem can exceed itself. This year is a case in point."

Qu said a close inspection of the figures revealed "serious discrepancies, implying that some of the numbers may be seriously distorted". In particular, he said, the numbers supplied for growth in fixed-asset investment suggested that GDP would have grown nearly twice as fast as it did if the figures were correct. Nor were industrial production figures consistent with the GDP numbers. He added that "we suspect that the data for growth in fixed-asset investment and industrial production may have been exaggerated by 50 percent and 20 percent, respectively".

So how accurate are China's figures? Or more succinctly, as an article in the South China Morning Post recently asked, "Is China cooking the books?"

Its national statisticians are probably not cooking the books. China's National Statistical Bureau has been struggling laboriously over the past several years to upgrade its system of calculating growth. The bureau has had the full support of Premier Zhu Rongji, who charged in 2000 that "falsification and exaggeration are rampant".

Nonetheless, at the heart of the problem is a system that has been handed down from China's old command economy. It is a routine in which local officials set their production targets at the beginning of the year and falsify figures at the end to misinform Beijing that they have met their goals. Those figures are often far afield of reality.

This is demonstrated by probably the most definitive analysis of China's economic statistics, which was completed in December by the editors of the China Economic Quarterly, published in Beijing. The editors point out that while annual GDP figures normally rely on a combination of figures such as consumption plus government spending plus investment plus net trade, China arrives at its numbers only by gathering statistics on production from local managers.

"Local statistical offices are heavily influenced by local political leadership," the editors write, "and when career advancement depends on performance related to assigned targets, the targets tend to become self-fulfilling." The National Bureau of Statistics, for instance, has no independent method of checking on local output figures. For agriculture, it has none at all - independent or otherwise.

At its worst, this system in which district and regional bureaucrats sought to fulfill their production quotas resulted in tens of millions of deaths during China's Great Leap Forward from 1958-62. As dramatically detailed in Jasper Becker's 1996 book Hungry Ghosts, provincial satraps eager to make their production quotas took every bit of food from starving peasants to send to central granaries, sentencing millions to starvation and doom.

This drive to come up with numbers to satisfy the GDP quotas set at the first of the year shows in other figures that are supposed to feed into GDP. For instance, it is axiomatic that energy consumption in developing nations must grow far faster than GDP as the countries industrialize. But China's energy consumption actually fell over the three years from 1996-99 after topping out at 15.3 percent in 1993, then falling as low as 2.8 percent in 1998 before rising back to 10.7 percent in 1990. This was at a time when China was reporting that growth was rising by an average of better than 8 percent a year. Some international economists and apologists for the Beijing regime wrote at the time that China had entirely escaped the system in which energy growth did not have to outpoint GDP growth.

But, say the editors of the China Economic Quarterly, "since it is difficult to inventory electric power, consumption is also generally assumed to equal production. In recent years, electric power growth has slumped while reported GDP output growth has continued in the 7-9 percent range. However, to some degree the efficiency of energy use in the economy improved during this period because of higher relative prices and power-cutoff enforcement for non-payment. Hence, we do not know how good a proxy power output and consumption were for GDP growth."

In fact, at no time were figures further off than in 1997 and 1998, at the height of Asia's financial meltdown. Farm output was said to have increased in all but one of China's provinces despite the fact that the Yangtze River was flooding to the extent that it created one of the country's biggest environmental disasters in the 20th century.

Thomas G Rawski, professor of economics at the University of Pittsburgh in the United States, estimates that China's GDP growth in 1997-98 could well have fallen by as much as 2 percent at a time when officials were bragging about 7.8 percent growth. Official and unofficial data indicate that 1998-99 GDP growth could actually have been even worse, Rawski writes. He believes growth could have been somewhere between minus 2.5 percent and plus 2 percent.

The National Bureau of Statistics, which he calls "the victim rather than the author of this episode", is continuing efforts to revive honest reporting, which Rawski believes was the case prior to the mid-1980s, when Deng Xiaoping opened China to the outside world. Ironically, prior to that time, Rawski writes, Chinese growth statistics were a closely held secret passed on only to the country's leaders in Zhongnanhai. It was only after China had opened up that government officials saw it necessary to indicate to the world that the country was undergoing dramatic growth and the figures started to depart from reality.

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