THIS BYSTANDER HAS long not given undue credence to the case that China’s economic data misrepresent the real state of the economy — or at least they don’t misrepresent it any more than any other country’s data.
That assertion comes with a bunch of caveats, notably that counting the output of any economy is fiendishly difficult, and especially one as large as China’s. Also, as nations evolve from being manufacturing- to services-based, the task gets even more challenging.
The way the world counts GDP was designed for an industrial era where there were hard outputs to measure: ingots of steel; sacks of coal; trucks full of widgets. In a services-dominated economy, GDP, which is, after all, no more than the value of the output of goods and services, can be increased merely by having bankers raise their fees.
China has a track record of announcing GDP data closely aligned with official targets. It is reminiscent of the way the General Electric Corporation in the United States in days past used to report quarterly earnings bang in line with the guidance it had given stock analysts.
Smoothing earnings, that was called. State planners would appreciate the technique if anyone would.
China’s national GDP number is derived from data collected across the country and while the National Bureau of Statistics fields a team of more than 20,000 data collectors, they still need local assistance. The importance, real and symbolic, that Beijing attaches to the overall GDP figure is an incentive for local officials and state-owned enterprises to bolster the numbers they furnish.
President Xi Jinping has set a national target of doubling output and income levels by 2020, goals that demand annual GDP growth to average 6.5%. Patriotic statistical duty becomes self-evident.
Longstanding readers may recall Prime Minister Li Keqiang once saying that the country’s GDP data was “man-made” and that measures such as electricity consumption and freight volumes carried by rail were better indications of economic growth.
However, it is almost a decade now since he said that — and analysts named a now barely remembered index of such proxies after him.
China’s national statistics have become much more robust over the ensuing period, particularly those for industrial output which a decade or more back had known methodological flaws in their collection. Paradoxically, those have been mostly fixed just in time for industrial data to become relatively less important than that for services in the overall GDP number.
Similarly, measures like electricity consumption have become less reliable indicators of growth as the economy has become a more efficient consumer of power. Furthermore, is that electricity being used to run a mill or a mall?
Wang Baoan, the disgraced head of the National Bureau of Statistics who has been brought down by the anti-corruption campaign, had once said that tax data supported his office’s GDP numbers — not that that is an assertion that can be easily verified by outsiders.
In short, China’s numbers may have a wide margin of error, and state statisticians have become adept in optimising the GDP deflator used to convert between nominal and real growth (underestimating the inflation measure will give an impression of faster real growth), but fudge is not the same as fabrication.
For one, policymakers themselves need a more not less accurate GDP number to direct the economy along its decelerating glide path towards ‘rebalance’. Even China would be unlikely to be able to conceal the existence two sets of books indefinitely.
China now publishes so much economic data that evidence of activity, in piecemeal parts of the economy at least, is hiding in plain sight. Perhaps the one thing that can be said with certainty is that both the official statistics and the numbers proffered by their critics are now mostly headed in the same direction.