China's worthless economic statistics

By Hari Sud
Column: Abroad View TOOLBAR
Published: February 19, 2010 Print Story
Add Comments
Font size: Email a friend
Watch this writer
Toronto, ON, Canada, — China is trying hard to project itself as one of the
world’s greatest economic power with worthless economic statistics is what China’s National Bureau
of Statistics headed by Ma Jiantang said on January 28.

Ma was complaining during the national statistics works conference that provincial officials routinely
fudge and inflate numbers to make them look good. The rigged statistics become gospel and
economists and analysts all over the world use it to polish China’s image. Chinese leaders smilingly
acknowledge the attention despite knowing that the statistics are fudged.

The margin of error in China’s gross domestic product statistics over the past 20 years is at least 15 to
20 percent. It could have been higher, but the NBS corrected some errors though not all.

As per the U.S. Central Intelligence Agency’s World Factbook, China’s 2009 GDP at purchasing
power parity is US$8.8 trillion. If the figure is overstated by 20 percent, then the true value should be
US$7 trillion. But that still puts China much behind the United States and the European Union but
well ahead of Japan. India is behind with US$3.6 trillion. One should however note that China exports
62 percent of its output while India consumes 62 percent of its output internally.

Chinese leaders are unmindful of all the faulty statistics. They have acquired airs of greatness around
them and anybody that questions them is no longer their friend. The statistics are prepared to support
the Communist Party’s agenda that includes 10 percent growth in a recession year. Therefore,
provincial leaders fudge the numbers to make them look good.

Professor Thomas Rawski, a Harvard educated Sinologist, has been following Chinese statistics for
the past 30 years. In 2003, he pointed out that China’s GDP grew at about half the level of what it was
officially stated. Florence Chan, a Hong Kong based journalist holds a similar view. Both have studied
the five-layered Chinese statistics preparation process and both have pointed out errors in the
statistics.

The U.S. based bi-monthly magazine Foreign Policy said in their September 2009 issue, “Western
media outlets often portray Chinese book-cooking as part and parcel of a monolithic central
government and omnipotent Beijing bureaucrats. But the problem is manifold, a product of centralized
government as well as decentralized officials.”
However, the lower levels of government cannot be exclusively blamed for cooking up the books, as
the pressure comes from the Central Government to meet targets. That explains why the fudging of
data is standard process.

Not to be misled by faulty statistics, China is still a very large economy. It is one of the largest
exporters of consumer goods and deposits US$300 billion to US$400 billion every year in U.S. and
European banks. It is the largest holder of foreign exchange deposits at US$2.2 trillion. Although its
status is envied by nations, it could deflate if all the statistical faults are cleaned up and their books are
open to public scrutiny.

The issue of China’s faulty statistics has become more interesting especially in light of Ma’s
complaint. He has not been fired yet, which means there is some support to his complaint. He backed
his complaint by providing some insight in the provincial data submitted for consolidation.

According to Ma, data submitted by the provinces in the first half of 2009 exceeded the national GDP
figure calculated by NSB by 1.4 trillion yuan (US$204 billion), which is 10 percent of total GDP. The
error was 19 percent in 2004.

It is a systemic problem and is encouraged by some members of the Communist Party that were
former provincial lords and fudged numbers themselves. So, they do not question the people in-charge
now at the province level. However, for other politburo members, this is not a laughing matter. They
are hard stuck by the disclosures.

There is also a strong argument for inefficiency in the economic management of the country. Nobody
knows what is behind their US$583 billion stimulus package of 2008-09 or the US$1.5 trillion in
loans they advanced last year.

If 62 percent of China’s total products and services were exported and if markets have shrunk, then
how can they claim some 10 percent growth in their economy for 2009? There is only one way it can
happen – stockpile the output. In such cases, when the stockpile is released together with continued
output, goods flood the markets. That has dire consequences in the market place and the forgoing is a
very difficult subject for Chinese leaders to discuss. So, they hide behind a virtual wall of national
secrets.

The danger of inaccurate data is so great internally and externally that it could lead to a collapse.
Investors are weary of inaccuracies. They tend to pull their money out once the lies are discovered and
when foreign investors sell short, it creates havoc in the financial markets.

What is behind all the lies? The Chinese leadership urgently desires to look and behave like a
developed nation. So, they built brand new infrastructure to showcase their progress. Whether they
need it or not is a secondary matter, as long as it gives them a brand new look.
China is presently classified as a developing country and in 10 years they desire to be classed on par
with developed countries like the United States, Europe and Japan. For that to happen they need 10 to
12 percent growth every year. This is the big reason behind all the lies and the Chinese leadership
does not mind the dangers in fudging data.

The Western media is coy about China’s cookbook factory of statistics. It is still dubbed the land of
mysteries, dictatorship and strange ways of doing things. But they like China and their money
deposited in U.S. banks and do not hesitate to boost the egos of Chinese leaders by heaping praise on
them. The result is an overconfident, obtuse and arrogant China.

Every leader in the Western world knows that something is wrong in China’s statistics. But none have
the guts to tell them. Had it been India, Indonesia or Russia, they would have made it a subject for
jokes and laughter.

There is only one possibility that the statistics could result in a major economic disaster. The plan by
Chinese leaders of creating a future based on fudged statistics may find no takers at a later time.

For example, China misunderstood their prosperity and spent some US$50 billion on the 2008 Beijing
Olympic games for prestige only. Presently, they are building an ultra modern infrastructure that could
hand them little return in the future.

They have a bigger problem on hand with the U.S. asking them to revise their currency value. Any
currency adjustments can put a lot of marginal manufacturing in China out of work and they will have
to invest more money in high value, high margin exports.

There is a strong case for changing China’s process of preparing economic statistics. But the West is
not pressing China strong enough to change its behavior. The Chinese do not see the need, as inflated
statistics bring them accolades of praise.