Officials Subvert Reporting System

Differences persist in growth figures reported at China's local and national levels.
An analysis by Michael Lelyveld
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A Chinese investor looks at share prices and indexes at a stock brokerage in Huaibei city, east China's Anhui province, Jan. 17, 2012.
A Chinese investor looks at share prices and indexes at a stock brokerage in Huaibei city, east China's Anhui province, Jan. 17, 2012.

China has warned local officials to stop fabricating economic reports less than two months after launching a new system to fight data fraud.

On April 6, National Bureau of Statistics (NBS) chief Ma Jiantang said in a web posting that authorities were still manipulating production numbers despite a new process meant to guarantee accuracy.

In one of many attempts to halt falsification over the past decade, the NBS started requiring some 700,000 industrial, service, and real estate companies to submit data directly in February rather than routing reports through local and provincial governments.

The enterprises account for about 80 percent of national GDP, the NBS claimed. But reporters for China's 21st Century Business Herald quickly found instances of continued tampering with the figures, presumably aimed at advancing officials' careers.

In Yili prefecture of northwest Xinjiang region and Jian'ou city of coastal Fujian province, the paper traced cases of local "convergence" efforts to ensure that new data would be consistent with previous reports.

In other cases, reporters found some industries followed "two-track" accounting or kept "multiple sets of data" for various purposes.

Real estate companies might use one set of figures for the NBS, another for the construction sector, another for their own industry and yet another for internal use, the Chinese-language daily said.

Ma posted a copy of the report on the NBS website and ordered "immediate rectification to ensure that statistical data are authentic."

A good sign?

Derek Scissors, senior research fellow in Asian studies at the Washington-based Heritage Foundation, said it is unclear whether the new reporting system will work if officials can falsify data before it is sent to the NBS.

But Scissors added he is encouraged by Ma's decision to post the critical story on the NBS website. It may also be a good sign that officials are trying to beat the new process, he said.

"The fact that people are trying to go around the new system, that's actually reassuring in a sense," Scissors told RFA. "That's what you'd expect if you're improving the situation."

Local officials, who have been pumping up production numbers for years, may now see a threat if their previous figures do not "converge" with direct company reports.

"New, proper numbers are going to make a lot of people look bad in a lot of different ways," said Scissors. "The locals aren't just going to say, okay, we give up."

The NBS has long acknowledged accuracy problems with its economic data. Provincial GDP reports routinely add up to more than the national figures after NBS adjustments.

Last year, four-fifths of China's provinces, autonomous regions, and municipalities claimed double-digit growth, although the NBS said national GDP rose 9.2 percent. The provincial totals were 10 percent higher, the state-sponsored Economic Daily said.

'Overstated achievements'

In February, People's Daily accused officials of "fabricating statistics to overstate political achievements."

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

In 2009, the National People's Congress (NPC) enacted revisions to the Law on Statistics, promising severe penalties for officials who "intervene in government statistical work and manipulate or fabricate data."

But nearly three years later, local officials have apparently been undeterred by the threat.

While the problem is an old one, it has come into sharper focus as China's economy has grown in size and importance to world markets, which may rise or fall in response to its economic reports.

On Friday, for example, the Dow Jones Industrial Average fell over 1 percent. Reuters cited China's "disappointing" first-quarter growth numbers as the primary cause.

According to the NBS, quarterly GDP rose 8.1 percent from a year earlier, the slowest rate since 2009. The pace failed to match market expectations of 8.3-8.5 percent, the official Xinhua news agency said.

But the NBS warning on data fraud may raise doubts about whether such small variations in estimates are reliable.

Sustainable growth

Data manipulation may also be a problem for Premier Wen Jiabao, who has called for slower, more sustainable growth after years of double-digit expansion.

Without accurate economic reporting, it is hard to know whether China has made progress in controlling property prices, for example, or whether real estate companies are only submitting numbers that the government wants to hear.

The answer may influence decisions on when to ease monetary policy and allow more bank loans.

The larger question is whether world markets should be reacting to Chinese data that are admittedly untrustworthy or subject to falsification.

"People reacting directly to Chinese statistics on face value ... I don't know whether to call that dishonesty or insanity, but it's one of the two," Scissors said.

Some experts believe China's GDP numbers are at least consistent enough to draw conclusions about whether its economy is growing faster or slower. But Scissors doubts even that.

He suggests that NBS data have been adjusted in both directions for political reasons as the occasion demands, making it hard to tell how much the growth rate has actually changed.

"It's clear that when the Chinese economy is growing really, really fast, the government says it's growing not quite as fast. When the economy is growing very slowly or not at all, the government says it's doing okay," Scissors said.

"They dampen the results. They like stability," he said.

The bias in reporting makes it hard for economists to make their own adjusted estimates or draw reliable conclusions about comparative rates of growth.

But Scissors sees the conflict between the NBS and local officials as part of a continuing process that may lead to more accuracy.

"The system needs to be radically changed. That's going to mean multiple rounds of figuring out how to solve these problems and people trying to go around the new method," Scissors said.





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