Slowdown Or Slump?

Economists say China's growth rate is exaggerated.
An analysis by Michael Lelyveld
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An elderly woman walks past luxury stores in the Wangfujing shopping district of Beijing, Jan. 17, 2012.
An elderly woman walks past luxury stores in the Wangfujing shopping district of Beijing, Jan. 17, 2012.

China's economic growth slowed to a more moderate pace last year, but by how much remains a matter of debate.

Officially, the annual growth in Gross Domestic Product (GDP), which measures the value of a country's economic activity, dropped to 9.2 percent from 10.4 percent in 2010, the National Bureau of Statistics (NBS) announced on Jan. 17.

The slowdown was "in line with the government's plans to cool China's overheated economy," said NBS Director Ma Jiantang, according to the Associated Press.

But some economists suspect the slippage was steeper than the NBS has acknowledged, citing years of evidence that official figures have been seriously flawed.

In a posting titled "China's Economic Data Are (Still) Not Credible," research fellow Derek Scissors at the Washington-based Heritage Foundation argued that NBS estimates are "usually inconsistent, occasionally wildly inconsistent, and do not seem to be improving in quality."

"There are indirect indicators of much slower GDP," said Scissors, pointing to factors like a surprisingly weak 2.5-percent increase in auto sales after a 32-percent surge in 2010.

Property prices in a majority of China's cities have also been falling for months.

In Shanghai, commercial real estate and housing sales dropped 13.8 percent, the official Xinhua news agency said. Beijing's home prices were down 11.3 percent.

Slow growth

In an interview, Scissors estimated that GDP actually grew last year at a much slower rate of "around 6 percent."

Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, also told RFA that the official growth figures were probably "exaggerated by as much as 2 percent."

That kind of overstatement would help explain the government's seemingly contradictory signals on economic policy.

After fighting the inflationary effects of its 4-trillion yuan (U.S. $631-billion) stimulus program for over two years, China started easing reserve requirements for banks on Nov. 30, breaking a long string of tightening measures.

At times, the "prudent" monetary policy of the People's Bank of China (PBOC) has seemed more like a seesaw between extremes.

On Jan. 19, the central bank stepped suddenly into the money market by injecting 183 billion yuan (U.S. $28.9 billion) of new cash into banks, marking the second liquidity move in a week to make sure that Spring Festival travelers could get access to funds.

The markets are poised for more loosening measures, Xinhua reported, despite concerns that inflation has not been licked yet.

Although monthly rates eased toward the end of the year, annual inflation of 5.4 percent missed the government's 4-percent goal by a wide margin.

One reason for the contradictory signals may be that the drop in GDP growth has been much greater than reported, especially in last year's fourth quarter.

Officially, GDP for the period rose 8.9 percent from a year earlier, making it the slowest growth since 2008. But Scissors believes fourth-quarter growth may actually have been even less, perhaps as little as 4 to 4.5 percent.

At that level, China's leaders would be concerned that growth is too weak to create the jobs needed to maintain social stability. "Capital-intensive growth of 4.5-percent growth is not creating that many jobs at all, and that is really scary," said Scissors.

Faking figures?

To those who follow China's economy, the complaints of inaccurate official figures will have a familiar ring.

The NBS has been working for years to improve data reports from China's provinces, which have frequently totaled more than the national GDP.

In 2008, Ma told the National People's Congress (NPC) that "faking and making willful changes on statistics" accounted for 60 percent of reporting violations.

"Some local officials fabricated data to gain honors, material rewards or promotions," Xinhua said in 2009, citing an NPC probe.

While the central government has tried to crack down with penalties for falsification, inaccuracy is still believed to be a serious problem.

Hufbauer said that even without fraud, the NBS has a particularly hard time tracking China's diverse service sector. "I doubt they can measure the quarterly movements very well," he said.

Then, there are questions about how much of the data may be guided by pressures to meet targets that the central government has set.

At times, China's policy responses appear more appropriate to big shifts in economic patterns, although officials point to steadier quarter-to-quarter changes and argue they are steering toward a "soft landing."

"They may very well cook the books," said Hufbauer. "For one quarter, or whatever it is, they may very well put in some fudge factors."

Internal estimates

Scissors said last year's growth dip may have been even deeper than NBS data suggest because official GDP figures from 2010 were deliberately understated due to pressure on provinces to restrain runaway growth.

China's economy may actually have climbed by as much as 12 percent in 2010 with big injections of stimulus spending, said Scissors. That would turn last year's fourth-quarter rate into a big dip and a cause for concern.

The question is whether Chinese policy-makers are using questionable official figures or more accurate internal estimates when they make monetary policy decisions.

"Do the Chinese themselves have better numbers? I would bet that they do, but I don't know that they necessarily have very good numbers," said Scissors.

The importance of independent estimates may also be rising with China's role in the world economy, since other countries have started taking its growth into account for their own policy decisions.

"Senior officials in the Chinese government aren't using their numbers. It would be terrible if American policymakers are," Scissors said.

Last week, the International Monetary Fund cut its forecast for China's GDP growth this year to 8.2 percent from an earlier projection of 9.0 as part of an update to its annual World Economic Outlook.





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