In mid-January 2017, the Chinese central government released its 2016 economic performance data – and not surprisingly, it beat expectations (albeit by a slim margin)! China-watchers were expecting 2016 GDP growth to come in at 6.7%, but the country reported 6.8% instead.
On the face of it, that seems hardly a remarkable occurrence. However, there may be more than meets the eye here!
RARE…AND WELL DONE?
It’s not rare that China has shown higher GDP growth than many other leading economies of the world. However, a report in the South China Morning Post might give pause to everyone saying “Well done, China!”
According to the news item, Liaoning province – known as “China’s Rust Belt” – has been cooking its books for years now, in order to show better economic growth than was actually achieved. The report notes that both central and local government were involved in the act.
The motivation behind this blatant data manipulation is believed to be self-interest, promotions and career advancement. Chinese provincial and local government officials are primarily measured on one key metric: economic prosperity of their respective domains. As a result, they are greatly incentivized to “cooking the books”.
Unfortunately, as Liaoning (and other provinces, cities and towns) reported inflated revenue, it resulted in lesser transfers from the central government into local coffers. Mainland China got to (unfairly!) keep a larger share of the income, saddling the local populace with a bigger tax burden.
The governor of the province, Chen Qiufa, admitted to the provincial legislature that this practice is fairly widespread – across a number of cities and counties.
The fake data practice has been in vogue for many years, likely from 2011 until around 2014. Now that the story has broken, the region mysteriously reported double digit declines in revenue, presumably to compensate for past discretions.
VALID SKEPTICISM
There doesn’t seem to be any surprise at higher levels of the Chinese government about the “cooked books” either. China’s National Bureau of Statistics chief is on record admitting that there are errors in official data records. He even warned about an endemic data falsification culture.
With China’s stated intention of shifting from an export-oriented to a consumption-based economy, the “cooked books” story validates the skepticism that many China-watchers have had for years about transparency within all levels of government there.
The UN reported that the overall global economy grew by a paltry 2.2%, largely lead by Asian giants like India and China. But given the skepticism surrounding Beijing’s data collection and reporting practices, even those numbers must be viewed with trepidation. The UN report must also be viewed in the backdrop of President Donald Trump’s economic and foreign policy agendas, which put Beijing and Washington at odds with each other.
Hu Xingdou, acclaimed Sinology expert and economics professor at the Beijing Institute of Technology, believes that falsifying official data is a widely practiced act in China. So, as China sets itself up to loosen its economy, woo foreign investors, and square off to President Trump’s anti-free-trade rhetoric; economists and investors will need to take everything reported by the government with a grain of salt – especially with Chinese “cooked books” on the menu!