Is politics driving economic data disclosure in Beijing?

HONG KONG: A new research study has refocussed academic attention on old doubts over the authenticity of some aspects of China's GDP statistics. It raises unsettling questions about whether GDP data is being used as a weapon to settle political and bureaucratic battles in Beijing.

In the research paper, titled "Revisions to China's GDP Data Following the 2004 Economic Census: More Questions Than Answers", Carsten A Holz, associate professor in the Social Sciences Division at the Hong Kong University of Science and Technology, says the findings of an economic census, on the basis of which China announced a benchmark upward revision of GDP statistics for the period 1993 to 2004, "raise severe questions about the capacity of China's National Bureau of Statistics (NBS) to accurately compile national data".

The census, carried out in 2004, had stumbled on a $270 billion slice of China's services sector economy - or an economy the size of Indonesia's - that had remained off the radar of government officials. It led China to announce a 16.8% increase in the size of its national economy. And although Holz, in an interview to DNA, emphasised that GDP revisions of that magnitude are not unique to China - indicatively, Italy's GDP was revised 18% upwards in 1997 - he conceded that there was "a lot of politics" surrounding China's GDP numbers.

This is, of course, not the first time that sceptical attention has been given to China's supernormal GDP growth of the past three decades, which has otherwise engaged everyone from envious policymakers in other developing economies to academicians looking for lessons from the world's biggest economic miracle.

One school of economists - but not Holz - has suspected for long that the real data relating to China's GDP growth are far lower than is officially claimed. Suspicions in this context have in the past been reinforced by difficulties in reconciling economic statistics that are compiled at the national level by the NBS, on the one hand, and those that are put out at the provincial level by local leaders, on the other.

In particular, since 1997, the sum of GDP figures reported by the provinces has exceeded the national GDP figures by a wide margin. The NBS and the official media had then sensationally claimed that GDP statistics from the provinces were buffeted by jiabao fukuafeng ("a wind of falsification and embellishment"). In 2000, even the then Premier Zhu Rongji had lashed out against economic "falsification" by government officials.

The NBS's allegation, which had the backing of national-level leaders, was that local government leaders were cheating by inflating their economic growth statistics in order to present a rosy picture - and protect their jobs. To neutralise this "falsification", the NBS adjusted these "exaggerated data" downwards when it compiled the official GDP growth statistics. But significantly, it has never revealed the basis on which it scaled down these numbers.

The January 2006 revision of GDP statistics has only reopened the can of worms and given rise to doubts about whether in China today statistical accuracy is becoming a casualty of political considerations.

Holz notes in his research paper: "Despite all the hype only a few years ago about data falsification by local statistical authorities in China, and despite the NBS's efforts to correct local data when deriving national data, the 2004 economic census results validate the local data and invalidate the NBS data for the years 1993 to 2004."

This, he adds, "raises severe questions about the capacity of the NBS to accurately compile national data." It also "retrospectively questions the existence, or at least the seriousness, of the supposed 'wind of falsification and embellishment' that was claimed to rage across China in the late 1990s."

Was this, wonders Holz, only a ploy by the NBS to strengthen its hand against provincial governments and central ministries in a bureaucratic power struggle?

"The NBS wants more power," Holz told DNA. "It wants to take control over the financial statistics and provincial statistics, and in order to do that it says that everybody else is wrong, and only it does the right thing."

The research paper further notes that in recent years, the NBS had repeatedly dropped hints that its own tertiary sector data had been underestimated, "which suggests that it knowingly reported false GDP data for at least the most recent years."

Why did the NBS not revise it? Was it waiting for the economic census data so it could make one clean revision? Or did political decisions take precedence over accuracy in statistical data?

"It's not clear," says Holz. "But there's a lot of politics behind all this."

Strikingly, Holz also points to other failings flowing from the 2004 economic census. For instance, the NBS revised secondary sector nominal value added of 1993-2004 upward but did not revise the real growth rate of the secondary sector, which accounts for about half of GDP. Was this, he wonders, because the census was of such poor quality that the data for the secondary sector were unusable? Or was it a political decision?

The jury is out on that one. But neither of these two possibilities is comforting for China economy watchers.