China Sees End to Era of 'GDP Supremacy' With Downplay of Growth

An analysis by Michael Lelyveld
china-textile-workers-sept-2014.jpg Female workers sew clothes to be exported to the European Union at a garment factory in Anhui province, Sept. 10, 2014.

As China struggles through a slowdown in economic growth, the government is trying to shift attention to other measures of success.

On Sept. 12, the National Bureau of Statistics (NBS) announced that it would start issuing a variety of new reports in an effort to end the country's preoccupation with its gross domestic product (GDP).

Ten days later, the official Xinhua news agency said the decision to publish over 40 new economic indicators on subjects ranging from urbanization to the environment "signals the end of the era of 'GDP supremacy.'"

For decades, officials at all levels have pursued high GDP growth rates, reflecting the broadest index of economic expansion and their own worthiness for promotion.

But in recent years, as pollution has worsened, the central government has repeatedly urged provincial and local authorities to take other factors into account.

Last November, the Third Plenum of the ruling Chinese Communist Party Central Committee pledged to "reform the evaluation and promotion system for party officials," which has been linked to wasteful development, environmental damage and societal ills.

"We should no longer judge leaders solely by GDP growth," President Xi Jinping said in a speech last year.

"Instead, we should look at welfare improvements, social development and environmental indicators to evaluate leaders," Xi said.

The NBS effort to release more reports on dry subjects like "structural optimization" and the debt-to-fiscal revenue ratio may be seen as furthering the government's reform program by measuring performance in terms other than unsustainable growth.

On Oct. 2, the NBS issued the first of the new reports, estimating that spending on research and development rose to 2.08 percent of GDP last year, compared with 1.98 percent in 2012, according to Xinhua.

Diversionary tactic

But the attempt to set new benchmarks for success at a time when GDP growth rates are dropping may also be a diversionary tactic to draw attention from the country's economic difficulties.

Arguably, the NBS initiative would have been less susceptible to suspicions of political manipulation when GDP growth rates were on the rise rather than on the decline.

"They're stopping the focus when the numbers aren't so great," said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics in Washington.

This year, the government has defied expectations that it would return to the massive investment-led economic stimulus programs of the past as GDP growth has slipped from 7.7 percent in 2013 to 7.4 percent in the first half of this year.

Last month, Wang Tao, an economist at UBS AG in Hong Kong, lowered her third-quarter growth forecast from 7.3 to 7.1 percent, reflecting continued weakness. Wang's forecast for the year is 7.2 percent, the official English-language China Daily said.

Premier Li Keqiang's official target for 2014 is 7.5 percent. Although he has recently suggested flexibility for small deviations, the government's resistance to stimulus policy is likely to be tested if growth nears 7 percent.

Last month, Reuters reported that a five-year low in factory output growth in August had raised fears that the economy "may be at risk of a sharp slowdown unless Beijing takes fresh stimulus measures."

By offering the market new forms of data, the NBS appears to be mounting a defense of the government's policies in case GDP growth continues to fade.

On Sept. 13, The Wall Street Journal suggested that the NBS might also change GDP calculations to emphasize intellectual property investment and spending on research and development, making growth look better, although year-to-year comparisons could become more opaque.

Missing targets

The question is whether the government is only seeking to dress up the GDP numbers because it knows they are unlikely to improve soon.

"If it means that China is giving up on 7.5-percent growth as a meaningful target, that's pretty significant in terms of the longer-term projections that we've all made," Hufbauer said.

In recent weeks, China's official press has been laying the groundwork for missing the government targets or lowering them.

On Oct. 3, Xinhua published a commentary citing slower growth as the "new normal," citing economists' expectations that rates would soon drop to 7 percent.

While analysts' comments have turned increasingly glum, international reaction to the cooling economy and government policy may be mixed since multilateral institutions and non-governmental organizations have urged China for years to curb the pursuit of blind growth and GDP.

The GDP juggernaut created growth rates as high as 14.1 percent in 2007, according to one measure used by the International Monetary Fund. The binge gave birth to new wealth but also resource destruction and environmental degradation that may take generations to reverse.

If Li continues to defy calls for broad stimulus steps, it could mark a turning point for both economic and environmental policies.

But the NBS plan to release a raft of new data raises concerns, in part because its old data has been frequently challenged as unreliable in the past.

Reporting discrepancies

China's government has pursued campaigns to clean up NBS economic reporting for well over a decade, but the results have been largely lacking, especially with regard to GDP.

Despite new collection procedures and penalties for data inflation at the local level, falsification has persisted as officials continue to seek advancement through pumped-up reports.

In 2005, for example, the NBS disclosed that GDP data from local governments for the previous year exceeded national totals by 3.9 percentage points, or nearly 2.66 trillion yuan (U.S. $321 billion at 2004 rate), Xinhua reported at the time.

In 2009, the central government enacted a revised Law on Statistics, providing stiff penalties for falsification.

But in the first half of this year, the GDP reports from China's provinces again topped national figures by 3.4 trillion yuan (U.S. $554 billion at current rate), a 12.6-percent margin, China Youth Daily reported.

The discrepancies give little confidence that accuracy has improved, a problem that may only be duplicated in the new reports, particularly if they are used by officials to spur their careers.

"The only way to deal with that is to have a totally independent statistical office," said Hufbauer. "That's not exactly the Chinese way."

Derek Scissors, resident scholar on Asian economics at the American Enterprise Institute in Washington, said the new initiative "probably means very little."

"Most likely, they'll just highlight whatever series makes government policy choices look better," said Scissors.

"Because GDP is flawed as an indicator everywhere, de-emphasizing GDP is a small step forward. But the problem of Chinese statistics as propaganda would be unchanged," he said.

Earlier attempts

This is far from the first time that China has tried to downgrade GDP growth as a goal.

"GDP will no longer be the major index to decide local officials' career and promotion prospects," said an official of the State Information Center, quoted by party flagship paper People's Daily in 2003.

"Instead, the employment and social welfare services will also be taken into consideration in judging officials' achievements," the official said.

The NBS may have signaled that it will try to put disappointing GDP numbers in a more favorable historical context with a Sept. 28 report, covered by Xinhua.

According to the agency, China's GDP last year reached 56.9 trillion yuan (U.S. $9.32 trillion), which accounted for 12.3 percent of the world's economy.

The figures represent "remarkable progress" since 1952, when China's GDP was only 67.9 billion yuan (U.S. $11 billion), the NBS said. Over the period, per capita GDP has grown from 119 yuan (U.S. $19) to 41,908 yuan (U.S. $6,840), the bureau said.

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