Friday, March 22, 2019

China Watch 31, Overstated and exagerrated GDP size

This is interesting. The China Communist Party local leaders over-state the size of their economy for the past 9 years. They also under-state the government debts (and degree of political persecutions).

SCMP calculations show the adjusted nominal GDP level in China is about US$11.5 trillion using current exchange rates, still more than twice the size of Japan’s economy at US$5.16 trillion, but well below the economy of the United States at US$20 trillion.

The paper, “A Forensic Examination of China’s National Account”, was submitted to the “Brookings Papers on Economic Activity”, a journal published by the US-based think tank Brookings Institute twice a year…

The paper’s four authors – Chen Wei, Chen Xilu and Michael Song from the Chinese University of Hong Kong and Chang-Tai Hsieh from the University of Chicago – used a mix of economic indicators that are less likely to have been manipulated by authorities to prove that the National Bureau of Statistics (NBS) have not done enough to correct the errors in the data collected from provincial governments over the past decade.

It has long been believed that local Chinese officials inflate figures reflecting their economic performance, which is closely tied to their opportunity for promotion. Since 2003, the NBS has produced a national gross domestic product (GDP) figure that is lower than aggregate provincial data after examining other data such as the census and land sales.

One method that the authors used to probe the accuracy of the NBS’s adjustments was comparing the growth of official GDP with the growth of revenue from value-added tax (VAT). Local governments have fewer incentives to manipulate VAT revenue, since a large portion of it is eventually transferred to the central government, therefore overstating VAT would only increase fiscal revenue losses.

The authors found that since 2008, the official growth rate for industry and other sectors exceeded their corresponding VAT growth rate, with the gap widening over the past decade, indicating that the government was overstating official GDP.

In other words, the overstatement of official growth has worsened since 2008 and NBS’s corrections have been increasingly inadequate to offset bottom-up data exaggerations.

A similar conclusion was drawn when the authors examined and adjusted the official GDP growth data with a set of alternative indicators, including satellite images showing lights at night, national tax revenue, electricity consumption, railway cargo traffic, as well as imports and exports that are less likely to be over-reported, although these proxies did not fully capture the growing importance of the service sector in the economy in recent years.

The economists suggested that the problem is that much of the underlying data needed to project GDP is outside the NBS’s control, even though the agency has been trying hard to collect local data itself. At the same time, the NBS is also in a weak political position to confront local political leaders to demand better data collection.

“Although the NBS adjusts downwards local statistics, it does not report the adjusted local statistics, perhaps out of a desire to not confront powerful local leaders,” the authors said.

“There are three problems with China’s GDP. One is that it doesn’t necessarily measure the right thing. Two is statistical bias in the way data is collected. Three is really a macro policy problem by the government which should write down all the bad debt,” said Michael Pettis, professor of finance at Peking University.

“The NBS is only trying to fix the second problem.”

See also:

No comments: