China has reported slowing economic growth for the first quarter of the year as doubts about the accuracy of official data persist.
On April 15, the National Bureau of Statistics (NBS) announced that gross domestic product (GDP), an estimate of the market value of a country’s goods and services, rose at an annualized rate of 7.7 percent, dropping from the 7.9-percent pace in the fourth quarter of last year.
The performance was "weaker than most economic forecasts," the official Xinhua news agency conceded, while stressing that it still topped the government's full-year target of 7.5 percent.
Some officials and foreign media were more pessimistic.
NBS spokesman Sheng Laiyun said that "after 30 years of high-speed economic growth, potential productivity in China has dropped," the Financial Times reported, warning that the country has entered "an era of slower growth."
Western news agencies cited a host of factors for China's failure to live up to their predictions, including uncertainty in the property market, a shift in the official economic growth model and concerns about the spread of the bird flu.
Nearly all the new quarterly numbers followed the slower growth trend.
Industrial output rose 9.5 percent, down from 11.6 percent a year before. Retail sales grew 12.4 percent, down from 14.8 percent a year earlier.
Urban fixed asset investment climbed 20.9 percent, matching the year-earlier mark. But power consumption increased 4.3 percent, compared with 6.8 percent a year ago, the National Energy Administration said.
Stock markets slumped on the news, but there were reasons to question whether China's data collection was accurate enough to estimate GDP to within two-tenths of a point.
Less than a week earlier, worldwide media reacted skeptically to China's trade figures after the General Administration of Customs (GAC) reported that exports jumped 10 percent in March.
Analysts were quick to point out that China's reported exports to major markets like Hong Kong were far higher than their reported imports from China.
"The figures in Hong Kong to and from China do not add up," said Francis Lun, chief economist of GE Oriental Financial Group, according to the Associated Press. "Instead of 10 percent growth, you have 2 or 3 percent."
"The breakdown of exports by destination veers towards the absurd," said consultants at IHS Inc. in a research note cited by Bloomberg News.
China reported a 93-percent surge in exports to Hong Kong, accounting for 27 percent of its March total, but analysts were doubtful.
In the previous three months through the end of February, China claimed U.S. $95 billion in exports to Hong Kong, but Hong Kong reported less than U.S. $59 billion in imports from China, the Financial Times said.
Similar discrepancies appeared in the March figures for trade with Taiwan, which reported a 1.2 percent drop in imports from China, although China said exports to Taiwan rose nearly 45 percent.
Suspicion has fallen on the common practice of reporting phantom exports using phony invoices in order to claim export tax rebates.
"There is plenty of anecdotal evidence to suggest that exporters are faking orders," the IHS analysts said.
Experts also cited the use of phantom exports as a way to disguise inflows of speculative "hot money."
On April 14, GAC spokesman Zheng Yuesheng said the agency "has conducted initial research into the reported phenomena," according to Xinhua. "We'll take corresponding regulatory measures, if necessary," Zheng said.
Derek Scissors, senior research fellow in Asia studies at the Washington-based Heritage Foundation, said the traffic in phony invoices has been going on for years.
But the hot money flows are related to events surrounding the downfall of former Chongqing Communist Party Secretary Bo Xilai last year and fears of political instability, said Scissors.
"There was a huge outflow of money from China because people were scared about what happened to Bo Xilai in anticipation of the Party Congress, and now it's coming back," he said.
While China has become a major economic force, it still keeps official curbs on capital movements in and out of the country, leading to surreptitious monetary flows.
"We have a distortion, which is the closed capital account. It leads to bad trade data. It leads to people hiding capital flows in trade," Scissors said.
Because the economy and the incentives have grown, the hot money flows have been huge.
"Over the course of this year, I wouldn't be surprised if U.S. $200 billion was repatriated," said Scissors.
Inaccuracies to persist
In one recent sign of the problem, the Ministry of Public Security arrested 18 people on suspicion of forging and selling 2.5 million fake invoices, Xinhua reported on April 19.
The number is just a fraction of the 1.3 billion false invoices seized since 2008, the report said.
The government has been well aware of the problems of phony invoices, inaccurate trade data and hot money, but Scissors argues, it has decided that the capital movements are too important to simply shut off.
"It's healthier for China to have this way of moving money past the closed capital account and lie about it than it is to not have the way," Scissors said.
The fudging may lead to major discrepancies in China's trade and economic data, but as long as the government remains fearful of capital flows and free trade in its currency, the inaccuracies will persist.
So the answer to how much China's economy really grew in the first quarter may be that no one really knows.
Last year, the NBS launched a new system requiring 700,000 industrial, service and real estate companies to submit reports directly to the agency in hopes of halting data fraud by local officials seeking promotion for high economic performance.
While it is unclear whether the system has improved accuracy, the flap over the trade figures suggests that the fraud problem goes beyond the NBS.