- Mainland has overestimated its nominal and real growth rates by about 2 full percentage points on average between 2008 to 2016
- Calculations suggest that the current nominal size of the economy is about 18 per cent lower than the official level of US$13.4 trillion at the end of 2018
Overestimates of growth in 2007 and previous years would further reduce the current size of the Chinese economy.
SCMP calculations show the adjusted nominal GDP level in China is about US$11.5 trillion using current exchange rates, still more than twice the size of Japan’s economy at US$5.16 trillion, but well below the economy of the United States at US$20 trillion.
The study focuses primarily on nominal, non-inflation adjusted growth.
The paper comes at a sensitive time for Chinese policymakers, who are battling a slowing economy due to their campaign to reduce debt and risky lending as well as the effect of the trade war with the United States. The inflation-adjusted growth rate of 6.6 per cent last year was the slowest since 1990.
Our estimates suggest that the extent by which local governments exaggerate local GDP accelerated after 2008, but the magnitude of the adjustment by the NBS did not change in tandem.
It has long been believed that local Chinese officials inflate figures reflecting their economic performance, which is closely tied to their opportunity for promotion. Since 2003, the NBS has produced a national gross domestic product (GDP) figure that is lower than aggregate provincial data after examining other data such as the census and land sales.
Local statistics bureaus generally overstate industrial output as a portion of overall production as well as the size of investment within overall expenditures, the two different approaches to calculating GDP, according to the paper. The methods of data collection are often the cause, for example, calculations of investment spending have been based purely on government reports on specific projects rather than on the financial statements of the investing firms involved.
One method that the authors used to probe the accuracy of the NBS’s adjustments was comparing the growth of official GDP with the growth of revenue from value-added tax (VAT), which taxes the value added to a product at each stage of production.
Local governments have fewer incentives to manipulate VAT revenue, since a large portion of it is eventually transferred to the central government, therefore overstating VAT would only increase fiscal revenue losses.
Although the NBS adjusts downwards local statistics, it does not report the adjusted local statistics, perhaps out of a desire to not confront powerful local leaders.
“Although the NBS adjusts downwards local statistics, it does not report the adjusted local statistics, perhaps out of a desire to not confront powerful local leaders,” the authors said.
Since September, the NBS has named and shamed local governments on its website for manipulating data, but it remains to be seen if local governments fall in line.
In a post in January, the NBS said it had passed 14 cases of data falsification on to local governments before February 2018 but that it had not been updated even though local officials are required by law to punish those responsible for manipulating data within six months after receiving a notice of a violation.
The NBS’s ability to fix China’s GDP data problem is bound by its limited political power, the authors indicated.
“There are three problems with China’s GDP. One is that it doesn’t necessarily measure the right thing. Two is statistical bias in the way data is collected. Three is really a macro policy problem by the government which should write down all the bad debt,” said Michael Pettis, professor of finance at Peking University.
“The NBS is only trying to fix the second problem.”
Source: SCMP
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