Doubts Rise Over China's Economic Growth

An analysis by Michael Lelyveld
2013-07-15
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Pedestrians walking along an overpass in Beijing, July 11, 2013.
AFP

China's economic growth has continued to slow as the government tries to crack down on inflated official reports.

On Monday, the National Bureau of Statistics (NBS) announced that the economy expanded at an annualized rate of 7.5 percent in the second quarter, down from 7.7 percent in the first quarter of the year.

The slippage was in line with a consensus of forecasts reported by the official Xinhua news agency a week before.

It was also in keeping with the government's target rate of 7.5 percent growth in gross domestic product (GDP), a key benchmark for economic expansion, for all of 2013.

Last week in Washington, Chinese Finance Minister Lou Jiwei suggested that the government is prepared to accept slower growth.

"We don't think 6.5 percent or 7 percent will be a big problem," Lou said, according to Bloomberg News.

Industrial output rose 8.9 percent in June from a year earlier, down from 9.2 percent in May, the NBS said.

Deepening reforms

In a commentary Monday, Xinhua called for deepening reforms rather than relying on new loans to pump up growth in the bloated manufacturing sector.

"Time is on the new government's side. The fear of massive workforce downsizing is diminishing while public understanding of slower GDP growth is rising," the agency said.

But the growth dip raised concerns on several counts.

First, the trend has been down following GDP growth of 7.9 percent in last year's fourth quarter and 7.8 percent for all of 2012.

Second, China's economy has routinely topped official targets in the past, raising expectations for greater growth than the conservative goals. The official target was also 7.5 percent for last year.

Third, and perhaps most troubling, the government has raised new doubts about the accuracy of its own reports, leaving the question of real economic growth rates up in the air.

The result is greater uncertainty about the gravity of the growth slowdown.

'Serious punishment'

On June 26, NBS director Ma Jiantang issued the latest threat of "serious punishments" for companies and officials who continue to commit data fraud and exaggerate economic results.

"Ma added that some companies are providing false figures to the national statistics system, and that some local governments are also distorting statistics," the official English-language China Daily reported.

The warning appeared to be another sign that the reform of official reporting that NBS launched last year has not worked.

Both economists and the government have known for years that China's economic data is inflated, usually by provincial and local officials seeking promotion by claiming higher production and growth rates.

Last year, the Communist Party flagship paper People's Daily charged local officials with fabrication to enhance their careers.

"In some regions or public organizations, leaders are engaged in lying, empty talk, fabricating statistics, or trumping up political achievements," the editorial said.

In one case reported by National People's Congress (NPC) investigators and state media in 2009, officials pressured data collectors in southwestern Chonqing Municipality to multiply the output of an enterprise by a factor of 10.

New law

The government has tried to stop the practice with a new statistics law that provides harsher penalties for falsification.

In February 2012, the NBS also launched a direct reporting system for 700,000 companies accounting for some 80 percent of GDP to bypass local distortions.

But the tampering has continued with reports of "convergence" efforts by local officials, pressing companies to report figures that match inflated data from the past to protect the local authorities.

Derek Scissors, senior research fellow for Asian studies at the Heritage Foundation in Washington, said big discrepancies make it hard for the system to suddenly eliminate inaccurate reporting.

"The same thing is true for the companies, the counties and all the way up the line. All of these places have been putting out false numbers, and I think they're all aware of it," Scissors said.

"My opinion is that the whole statistical chain is broken from top to bottom," said Scissors. "Everyone's going to have to make an adjustment."

No explanation

Although the NBS has repeatedly cited problems, it has not explained what factors it uses for statistical corrections or adjustments to its GDP reports.

Time and base comparisons also make it hard to extract any meaningful reading from official GDP growth estimates.

"The lies didn't just start now. We've had year after year of lies, so what's the base that we're talking about?"
Scissors said.

Analysts have long urged China's leaders to discourage data distortion by ending the practice of promoting officials based on economic results.

On June 28, President Xi Jinping touched on the issue at a meeting of the Communist Party's Organization Department, Xinhua reported.

"We should never judge a cadre simply by the growth of gross domestic product," Xi said.

The party "should consider a local official's work in various aspects including people's livelihood, the development of local society and the quality of environment," the report cited Xi as saying.

Manipulation

Scissors had praise for the statement, although it could also lead to political manipulations of economic data.

"It's one step on a long journey, but it's a step forward because it's a signal saying to everyone, go ahead and test the waters on weaker GDP," he said.

The result could be a gradual readjustment of GDP figures to greater accuracy, or a shift from an upward to a downward bias.

"What dominates Chinese statistics is politics, not accuracy," Scissors said.

Xi's statement may also be a sign that the government is taking the issue of inaccuracy more seriously as it tries to steer the economy toward a more sustainable growth mode.

Challenged

This year, China's official statistics have been repeatedly challenged.

In June, the NBS announced pilot programs in three provinces to correct "doubtable" data on fixed asset investment.

The agency cited a "notable gap" between the quantity of construction work reported and the gross product of the country's construction industry.

In April, controversy also erupted over suspiciously high export growth figures reported by the General Administration of Customs (GAC).

The government later acknowledged that the export numbers had been inflated to hide speculative "hot money" flows.

Last week, GAC reported a sudden 3.1-percent drop in June exports, the biggest monthly decline since 2009.

But it was hard to tell whether the figures reflected greater accuracy or an adjustment to compensate for previous exaggeration.

The problem of disguised hot money had been "tackled in May," making the export data "more reflective in June," GAC spokesman Zheng Yuesheng said, according to China Daily.

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