Statistical Flaws May Inflate China's GDP

An analysis by Michael Lelyveld
2015.05.18
china-jiangsu-coal-june-2014.jpg A coal terminal at Lianyungang port in Jiangsu province, June 23, 2014.
AFP

As China seeks to rekindle its slower-growing economy, it continues to struggle with shoddy statistical reports.

The National Bureau of Statistics (NBS) has tried for much of the past decade to improve the accuracy of its economic data. But problems persist, even as the official annual growth rate has slipped to its lowest level in 24 years.

The latest glitch emerged after the NBS reported power generation numbers for the first quarter, showing rates far below the 7-percent rise in gross domestic product (GDP), the weakest quarterly result since 2009.

The electricity data may be a sign that real GDP was far lower than the NBS has said.

Analysts often look to the electricity numbers as an indicator of actual economic growth, particularly for China, which has battled for years with local officials who seek promotions by inflating production data in their districts.

The power figures are also a component of total energy use, which the government compares with GDP to estimate energy efficiency and progress in controlling pollution.

China claimed a major efficiency gain in the first quarter as the NBS recorded a huge 5.6-percent drop in "energy intensity" from the year-earlier period. But the reported savings in energy use per unit of GDP assumes that the GDP accounting is accurate.

If the GDP figures have been overstated, the claims to greater efficiency and conservation won't stand up.

A closer reading of the power numbers makes it hard to tell.

Figures open to interpretation

Last month, the NBS reported that first-quarter power generation fell 0.1 percent from a year before to 1.31 trillion kilowatt hours (kwh). Consumption of 1.29 kwh rose by a slight 0.8 percent, the National Energy Administration (NEA) reported separately.

The problem is that the NBS website showed a lower generation figure of 1.27 trillion kwh for the first quarter of 2014, suggesting that output in this year's comparable quarter rose 3 percent instead of falling.

The discrepancy lends itself to several possible interpretations.

If the 2014 figure is right, the 2015 rate must be wrong, or vice versa. Alternately, a 3-percent rise in power output would be more consistent with 7 percent GDP growth. The wide spread between the reported decline in power and official GDP growth raises questions about whether GDP is inflated and by how much.

NBS reports on Monday of power generation in April presented similar contradictions.

The agency said output rose 1 percent in April from a year before, but the year-earlier figure on the NBS website yielded a growth rate of 4.7 percent. Year-to-date numbers were also conflicting.

David Fridley, staff scientist at the China Energy Group of the U.S. Department of Energy's Lawrence Berkeley National Laboratory, confirmed that the NBS numbers don't add up.

"You can't make sense of their arithmetic based on the numbers they posted," he said in an email to RFA.

Fridley said such inconsistencies in NBS data are common and nearly impossible to sort out.

The agency complicates the calculations by not reporting figures for January because the dates of the Lunar New Year skew year-to-year comparisons. But trying to derive the January figures by subtracting February and March from cumulative totals also yields different results.

Fridley said the NBS often makes adjustments to earlier figures without posting them retroactively, making growth rates unverifiable.

"NBS is calculating their cumulative change figures from revised numbers we don't have, so they have to be taken at face value with the caveat that they are subject to further change," he said.

GDP overstated?

But if the GDP growth rate is accepted as accurate, it would point to a major change in China's energy consumption patterns, probably much larger than can be explained by declines in heavy industrial use.

From 2005 to 2013, electricity use rose by an average of 1.09 percent for each percentage point of growth in GDP, Fridley said in a comment to the website www.resourceinsights.blogspot.com.

Last year, the power-to-GDP factor fell by more than half to 0.51 percent, raising questions about whether China made a radical change in energy conservation or whether it simply overstated GDP.

"My interpretation is not that the energy data are being fudged, but that GDP is being overstated," Fridley told RFA.

Economists have voiced doubts about China's GDP growth claims for years, while the NBS has pursued a series of reforms and efforts to take local officials out of the loop.

Aside from sending false signals to international markets, the NBS data problems raise questions about whether China's leaders are getting accurate enough information to make economic decisions at a critical time.

On May 7, the State Council, or cabinet, announced a change of leadership at the NBS, naming a former finance vice minister, Wang Bao'an, to replace Ma Jiantang as director.

Ma, who headed the agency since 2008, made several attempts to overhaul data collection and reporting. In his first year, the NBS investigated over 17,000 cases of statistical fraud, the official English-language China Daily said.

But the mismatch of the latest power numbers suggests that some flaws in statistical practices are deeply ingrained.

Fridley pointed to a more serious discrepancy that may raise doubts about both the official energy and economic reports.

In a recent memo, Berkeley Laboratories researchers noted that the NBS made a series of revisions to previous data as part of a statistical communique in February.

The agency adjusted GDP figures as far back as 2010 and revised energy totals for 2013, affecting calculations all along the line.

Among the changes, the NBS now says that GDP rose 10.6 percent in 2010 instead of the previous estimate of 10.4 percent, while 2011 GDP grew 9.5 percent, not 9.3 percent.

Those adjustments may be water under the bridge, although they also require recalculation of energy efficiency claims.

A more significant revision was a major increase in estimates of 2013 total energy consumption, which translated into the addition of 590 million metric tons of raw coal to previous consumption figures, the researchers said.

In February, the NBS said coal use in 2014 fell 2.9 percent, marking the first decline in 14 years.

The rate confirmed industry estimates that China burned 3.51 billion tons of coal last year. But the revisions to total energy consumption implied consumption of at least 3.9 billion tons, based on the NBS statement that coal provides 66 percent of the country's energy.

Since China already accounts for half the world's coal consumption, the new reading suggests a substantial increase in estimates of greenhouse gas emissions.

The increase in the 2013 energy figures in terms of coal use represents an additional 1.2 billion metric tons of carbon dioxide (CO2), Fridley said.

The NBS is expected to readjust its figures again in September and reflect the changes in new growth rate calculations. But until then, estimates of economic growth and energy consumption may be largely a guessing game.

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