China Delays GDP Reform Until 2019

An analysis by Michael Lelyveld
2017-11-20
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Ma Jiantang, former director of China's National Bureau of Statistics, discusses the country's GDP at a press conference in Beijing, Jan. 17, 2012.
Ma Jiantang, former director of China's National Bureau of Statistics, discusses the country's GDP at a press conference in Beijing, Jan. 17, 2012.
ImagineChina

China's government plans to introduce a new "unified" system of reporting economic data to eliminate falsification, three years after the process was previously expected to take effect.

On Oct. 30, the deputy head of the National Bureau of Statistics (NBS), Li Xiaochao, said the agency will take control of data collection from local authorities to measure China's gross domestic product, state media reported.

The unified process slated for 2019 will replace the current practice "in which national GDP and regional data are calculated separately by the NBS and regional offices," the official Xinhua news agency said.

Over the years, the sum of local and regional GDP figures has frequently exceeded national estimates, raising credibility questions.

In one reported case from 2014, provincial-level GDP reports topped national estimates by more than 12 percent. In 2015, Xinhua reported that some counties in the industrialized northeast had claimed GDP higher than that of Hong Kong.

The new system will "narrow the gap between national and regional GDP data," Li said.

The unified system is one of several reforms that the NBS has announced in recent years to improve the accuracy of economic reporting.

The problem with the latest announcement is that it is almost identical to one issued nearly three years ago.

In December 2014, the agency also said it was launching "a new unified system" for GDP calculations.

"The move is aimed at preventing inflated local figures contradicting central government calculations," the official English-language China Daily reported, citing then-director of the NBS, Ma Jiantang.

The initiative was part of a crackdown on local data fraud, often perpetrated by officials seeking promotions by exaggerating claims of production and economic growth.

"The central government will have the sole right to evaluate the GDP and growth rates of every province and municipality," Ma said in 2014.

The draft reform was expected to be approved by the cabinet-level State Council in the first half of 2015 for implementation in 2016 at the start of the 13th Five-Year Plan, China Daily reported at the time.

Years later, data fraud is still a problem.

"The government has promised zero tolerance for fabrication of economic data," Xinhua said last month, without referring to the earlier schedule for the reform.

Widespread fabrication of data

The report noted that officials in China's northeast Liaoning province had admitted falsifying economic data from 2011 to 2014. In 2015, Xinhua also cited widespread fabrication in the neighboring provinces of Jilin and Heilongjiang.

The unified process is one of several reforms for data gathering that the NBS has either announced or attempted over the past decade.

In 2012, the agency instituted a direct reporting system for 700,000 enterprises to avoid local pressure on enterprises for pumped-up production results.

In 2014, the NBS said it would end all reliance on provincial and municipal estimates in calculating national GDP after a government investigation uncovered massive fraud.

Doubts about China's GDP claims date back at least as far as 2007, when Premier Li Keqiang called the figures "manmade" and "for reference only," according to a leaked memo quoting his comments when he was Communist Party secretary in Liaoning.

The latest report on the NBS reform offers no explanation for the three-year delay.

Derek Scissors, an Asia economist and resident scholar at the American Enterprise Institute in Washington, said the slowdown is likely related to the investigation of the former NBS director Wang Baoan for "severe disciplinary violation," first disclosed in January 2016.

"They said they were going to do this before, but they didn't," Scissors said. "I think they can effectively blame corruption."

After taking over at the NBS in April 2015, Wang became one of the highest-profile casualties of President Xi Jinping's anticorruption campaign.

Accused of being "morally bankrupt" and trading power and money for sex, he was removed from office and expelled from the Communist Party of China (CPC) in August 2016, according to state media. Wang was given a life sentence for accepting bribes in May 2017.

How much Wang's downfall had to do with the delay and economic policy may never be known. But among other things, he was accused by the Central Commission for Discipline Inspection (CCDI) of making "speeches that went against the CPC Central Committee on key issues," suggesting that his ouster was about more than the salacious details.

Whatever the causes, the unified system would have needed to go through a long and complicated process before implementation.

Scissors said that revisions of local accounting are more than simply a matter of going in and making major or sudden corrections to economic reports that have been inflated for years.

The process for each series of data is more likely to require "smoothing" or "convergence" of results to avoid exposing huge faults in reporting that both begin and end with charges of corruption.

One interpretation is that the delay of the unified system was caused by local officials with something to hide.

"This is not a trivial exercise," said Scissors. "That has very big political implications. You don't just do that," he said, referring to the risk of abrupt revisions.

"You don't want to go out to a major province and find out that things are a lot worse than the province said, because that's a very awkward adjustment that has to take place," Scissors said.

Wedded to a commitment

Political consequences may help explain why the new target for the unified system was quietly announced after the recent CPC 19th National Congress rather than during the session or before, and without any reference to the three-year delay.

The CPC remains wedded to its commitment to double both GDP and per capita GDP in the decade ending in 2020. Any adjustments to the numbers starting in 2019 would not interfere with those goals.

Even with the post-congress timing, the new announcement of the unified system is likely to raise doubts about the government's claims that GDP has continued to grow at a 6.9-percent pace in the first three quarters of this year.

Although GDP figures in China remain highly politicized, they are likely to be less divergent from actual growth rates now than they were two years ago when the economy slumped.

Many economists believe that GDP growth may have slipped as low as 3 percent in 2015 while the NBS reported the rate as 6.9 percent.

This year with recovery, the gap between actual growth and the NBS third-quarter figure of 6.8 percent has probably narrowed.

"The 2017 numbers are much closer to being real because there was a bounce-back," said Scissors, who estimated that growth now is somewhere in the five-percent range.

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Only naïve onlookers accept PRC economic statistics at face value. In reality, the books have been cooked.

Dec 11, 2017 04:48 PM

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