Sunday, August 23, 2009

China’s economic statistics - the "GDP numbers riddle"

by M. Ulric Killion

(People's Republic of China State Statistical Bureau / 中华人民共和国国家统计局). In the news media circuit, the month of August witnessed a great deal of attention directed to China and its economic statistics. For instance, according to the China Economics Blog, Where Chinaeconomicsblog leads the FT is sure to follow (Posted by ChinaEconomist on Aug. 5, 2009):
"Of course the fact that the FT is covering the 'GDP numbers riddle' has nothing to do with Chinaeconomicsblog's coverage but it is good to see the FT picking it up nonetheless.
China's growth figures fail to add up [FT].
All but seven of the regions reported GDP growth rates above the bureau's first-half figure of 7.1 per cent. At the start of the year, Beijing set 8 per cent as China's growth target for the year.
However, this is the first time I have seen poetry as the first line of defence.
The criticism has prompted the NBS to launch a campaign last week, entitled 'Statistical Feelings: We have walked together – Celebrating the 60th anniversary of the founding of New China,' to boost confidence among statisticians.
The campaign has already produced works such as: 'I'm proud to be a brick in the statistical building of the republic.' In another poem, a contributor writes: 'I am arrange the stars in the sky because I have statistics.'"
There is the earlier Aug. 4, 2009 blog at China Economics Blog, "Chinese riddles" - Chinese numbers questioned yet again, which also addresses the recent controversy concerning China statistics. The Aug. 4, 2009 blog reads:
"Let us imagine that the numbers are wrong. What harm can it do? It might artificially inflate confidence that may in turn cause a virtuous circle of growth and prosperity? Can it be that easy or is it simply storing up a whole lot of trouble for later?
I have posted this article in full as it makes for important reading. This is an issue I have posted about on this blog on numerous occasions. The "oil use" issue is important as these numbers are harder to fake. Can oil use fall and output rise by so much? previous correlations suggest not. Can 100,000 statisticians be wrong? This number of statisticians might even help the UK get its numbers right."
As for the Financial Times' coverage of the issue, The Financial Times reports that economic statistics about regional economic growth aren't tallying with Beijing's numbers:
"But the latest set of first-half numbers provided by provincial-level authorities are far higher than the central government's national figure, raising fresh questions about the accuracy of statistics in the world's most populous nation.

GDP totalled Rmb15,376bn ($2,251bn) in the first half, according to data released individually by China's 31 provinces and municipalities, 10 per cent higher than the official first-half GDP figure of Rmb13,986bn published by the National Bureau of Statistics." 
The article goes on to describe a campaign launched by the National Bureau of Statistics in response:
"The campaign has already produced works such as: 'I'm proud to be a brick in the statistical building of the republic.' In another poem, a contributor writes: 'I can rearrange the stars in the sky because I have statistics'" (China Digital Times, China's Growth Figures Fail to Add Up (Updated), Aug. 6, 2009)."
The Aug. 4 blog (China Economics Blog) rightly describes the issue of the accuracy and reliability of statistical reports from China as an old subject that occasionally resurfaces. However, the premise of the Aug. 4 blog (i.e., "What harm can it do?") is challengeable. This is because the "GDP numbers riddle" presents an important issue for several and obvious reasons.

For instance, "Problematic are past reports of economic growth rates because they routinely contain embellished or reportedly higher rates of economic growth than real rates, by reflecting higher reported growth rates of 9 percent or more. According to Li Deshui, commissioner of the National Bureau of Statistics (NBS, guojia tongjiju), China's economy grew at an annual average growth rate of 9.6 percent from 1979 to 2004, at 10 percent in 2003, at 10.1 percent in 2004, and then at 9.9 percent in 2005. Li reported that for 2005 the GDP was 18.23 trillion yuan ($2.26 trillion), reflecting value-added components of several industries. Li also reported that primary industry reached 2.27 trillion yuan (5.2 percent increase), secondary industry was 8.62 trillion yuan (11.4 percent increase) and tertiary industry was 7.34 trillion yuan (9.6 percent increase). Although challengeable on several grounds - theoretical and practical - Li also announced economic performance in 2005, 'boosted the income per head of China's 1.3 billion citizens to $1,700, making the country richer than Morocco.' Further, Li adds, 'The data also means China, with output of 18.2 trillion yuan ($2.3 trillion), has overtaken France to become the world's fifth-largest economy and might also have leapfrogged fourth-placed Britain, depending on growth rates and currency changes in 2005.' In 2006, China's GDP reportedly reaches $2.6847 trillion and per capita GDP surpasses $2000 for the first time, and many predict that by 2020 per capital GDP will reach $3000" (internal citations omitted) (Killion, Modern Chinese Rules of Order (2007), Chapter 8).

"However, an IMF study observed that, in the long term, it is consumption rather than investment or even GDP serving as a better measure of economic welfare. A recent 2006 Organisation for Economic Co-operation and Development (OECD) study also found that within a national account framework, there are better measures of economic resources than GDP per capital, such as national product and net income. In terms of China, the earlier mentioned IMF study also observed the difficulty of operating in an environment of institutional deficiencies, which includes a weak legal framework, poor governance and economic data of dubious quality. A January 2006 article (Shenzhen Daily) reads, 'Economists agreed that China had the wind in its sails.' However, as early as 2003, Li Deshui acknowledged for the first time that China's economic estimates were flawed, and its research methods 'did not always reflect the real situation,' which necessitated that after about twenty years the NBS had to switch from the Soviet accounting system, and not standard international practices of readjusting quarterly and annual GDP growth estimates, to Western accounting standards. In terms of the reliability of China's statistics published by the NBS, one hopes that the 'wind in its sails' is not from the 'wind of falsification and embellishment (jiabao fukuafeng)'" (internal citations omitted) (Killion, 2007).

Copyright © Protected - All Rights Reserved M. Ulric Killion, 2009.

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