CAMBRIDGE, England — It is that time of year again when statisticians in Beijing have to decide how fast the Chinese economy grew in the last year. Or rather, not so much how much it grew but how much they are going to claim it grew. More so than anywhere else the figures for growth in gross domestic product.
GDP figures are highly political because they are used to define how well the Chinese Communist Party is doing in managing the economy, especially for measuring how fast China is catching up with the United States. Indications are that the statisticians are going to look into their box and come up with a figure somewhere between 8 percent and 8.2 percent. This is not as much as at the height of the reform and opening-up process, but it does mark a recovery over last year’s 7.8 percent and a reversal of the slowing down in growth over the last few years. There are, however, good reasons to doubt China’s GDP data.
I recall sitting with a couple of government statisticians in Beijing a few years ago. I asked them how they decided on what growth figures to announce. After some nervous laughter they said that they took the figure the party had announced at the target growth-rate for the year and their assessment of actual growth and then made a political judgment of where in the range between the two would be the politically acceptable rate to call. I was reminded of this last week at a high-level meeting called by a British government department to discuss the state of the Chinese economy. The question of the reliability of China’s GDP data came up at this meeting. A senior representative of a leading Chinese state financial-institution expressed surprise that anyone took the data at face value. His institution, he said, always discounted the published figures by 2 to 2.5 percent.
In other words they would have adjusted last year’s reported 7.8 percent down to just over 5 percent. If, as was implied at this meeting, the overestimating of China’s growth has been going on for many years, then the actual size of the Chinese economy is a lot less than claimed. The Chinese people are a lot less well off than the government tells them they are (which will not surprise them). They are also a lot further behind the U.S. economy than is frequently claimed and the catching up process will take a lot longer, decades longer.
Earlier this year, the World Bank, which does so much to publicize China’s growth rate data internationally, and which applauds the government for the achievements reflected in the growth-rate data, had a footnote in its quarterly report on the Chinese economy that sets out the official GDP figures. This footnote said that some experts (presumably not World Bank experts) had doubts about the accuracy of the official GDP data. It did not expand on this to say why those experts had doubts, nor explain the nature and basis of those doubts. The footnote was not repeated in subsequent reports, or any other World Bank documents, which continue to give Chinese data a World Bank official seal of approval by publishing them globally without qualification. World Bank data are used widely and taken to be the most accurate data available. It is a bit worrying then that they do not feel able to publicly criticize the government statisticians for producing what other government employees and people they recognize as experts on the Chinese economy regard as inaccurate data.
Counting beans in China is a daunting task. It is almost impossible to construct methodology for accurately reporting national production and expenditure levels and growth rates in such a huge and complex economy, especially when so much of the economy is only on the margins of, or even outside the boundaries of, the formal modern economy. But there are techniques that allow us to estimate the size of likely distortions in data gathering and also to assess a value for the informal, or only partially monetized, activities. The problem lies elsewhere, in the intentional over-reporting of production.
Why should authorities inflate production figures? At a seminar at a leading Chinese university a while back I was surprised at the amount of hilarity there was during the discussion of GDP data, not usually the source of much amusement. It was at this seminar, however, that I came across the phenomenon of the Guangdong Chicken.
The Guangdong Chicken was a term introduced by a South China newspaper, now closed down (predictably), which specialized in reporting on disparities between official data and the truth. They ran a story, apparently, showing that if you took the figures for inputs (such as chicken feed) into the chicken industry in parts of Guangdong province and then compared them to the reported output of meat and eggs, then it appeared that Guangdong chickens were 10 times more productive than chickens elsewhere. Hence the introduction of the term “Guangdong Chicken,” which is now used generically (at least by me) to refer to any inflated official data. The participants in the seminar showed how adding up local-level official reports of provincial-level data always gave totals in excess of central government reports of national data supposedly based on those local data.
Why should this be so? Because in China, political approval and therefore promotion is based on how well officials do in achieving targeted improvements in output. As nobody from Beijing is likely to go and count the chickens in rural Guangdong, or other backward locations, officials there, it is claimed, use data inflation as a method of trying to move up their career ladders. And at the central level, the Communist Party is keen to show the world how well it is doing and so has little incentive to produce accurate data if by doing so its achievements would be seen to be smaller.
The data don’t fool the people, however. They know how many chickens and eggs they are eating, they know how public-sector services, especially health care and education, are declining. They know how much of the reported production is simply wasteful production of unsalable inventories of unwanted goods by loss making state-owned enterprises (including empty luxury hotels, houses and office buildings). They know how many people are losing their jobs, through redundancy and forced early retirement. The last 20 years of economic reform and opening up have resulted in substantial economic growth and substantial improvements in the welfare of many Chinese, although probably not most — most Chinese still live on less than two dollars a day and many on less than one. It is a pity then that the achievements are exaggerated through statistical fraud. The false sense of achievement this gives detracts attention from the problems that threaten the future well being of the Chinese people.
One day the leaders will realize that the neglect of education and health care and social security, especially education, will seriously compromise the future strength and growth capability of the Chinese economy. For now the size of the problem is hidden behind the phony data.
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