China Renews Push to Curb Data Fraud

After years of trying to correct faulty economic data, China's government has hit on a new way of dealing with discrepancies.

On Dec. 25, the National Bureau of Statistics (NBS) announced it would no longer use local estimates of gross domestic product (GDP) from China's 31 provinces, municipalities and autonomous regions.

"The central government will have the sole right to evaluate GDP and growth rates of every province and municipality," said NBS director Ma Jiantang, as quoted by the official English-language China Daily.

The decision, which is expected to be approved by the State Council, or cabinet, may put an end to embarrassing contradictions in GDP data, which have been frequently cited by China's state-controlled press.

In the latest accounting for the first three quarters of 2014, the total of provincial-level GDP reports exceeded the national figure by 5.37 trillion yuan (U.S. $865.3 billion), China Daily reported, indicating a margin of more than 12 percent.

Results for the fourth quarter and full year are due to be announced next week.

Over the past decade, the central government has blamed the exaggerations on local officials, seeking to advance their careers by claiming high GDP growth as a mark of success.

Premier Li Keqiang is believed to be acutely aware of the fraud problem after reportedly criticizing local GDP figures as "man-made" and "for reference only" in 2007, when he was Communist Party secretary of northeast Liaoning province.

In 2009, an investigation by the National People's Congress (NPC) found cases of blatant falsification, including some production figures that were overstated by as much as a factor of 10.

In 2012, the NBS tried to tackle the problem by introducing a direct reporting system for 700,000 enterprises to bypass local pressure for data inflation.

But the new NBS plan and the continuing disparities in 2014 suggest that the previous solutions have not worked.

Realistic measurements

The question is whether taking local officials out of the process entirely will lead to more realistic measurements of China's economic growth.

The issue is important in part because world markets have become reliant on signals from the Chinese economy, often reacting to changes in official GDP growth rates of as little as one-tenth of one percent.

Major policy shifts are expected following minor changes in official GDP readings, but the NBS problems suggest that inaccuracies may be far greater than the variations in official reports.

President Xi Jinping has also urged acceptance of China's more moderate growth rates as the "new normal," but the NBS problems raise doubts about whether official accounting reflects actual growth.

"They have not solved the problem of bad local statistics," said Derek Scissors, an Asia economist and resident scholar at the American Enterprise Institute in Washington. "Maybe they've solved the problem of local officials from here on out deliberately exaggerating GDP."

But the new system may lead to even more questions.

"How will the NBS calculate provincial GDP? By using its own measures of the constituent transactions or by haphazardly adjusting the provincial measures?" Scissors asked.

The NBS has never been clear about how it reworks provincial GDP figures to arrive at national estimates, raising doubts about the calculations of national GDP.

Thousands of NBS officials are employed in data collection at the local level, making them more susceptible to local influence and provincial governments than to orders from Beijing.

The new NBS process has yet to address the problems of data gathering in the field.

"How will central government statistics teams be sealed from local interference if they're on site all year, as they need to be?" Scissors asked.

‘Serious punishments’

In 2013, Ma Jiantang threatened "serious punishments" for data falsification following reports of efforts to subvert the direct reporting system.

But the discrepancies in the 2014 GDP figures suggest that the threat of penalties has also had little effect.

One problem is the political difficulty of making sudden one-time adjustments to local economic figures and production numbers that could expose false reporting going back years.

In 2013, the 21st Century Business Herald uncovered instances of local "convergence" efforts to make sure that new data sent to the central government would be consistent with previous reports.

A comprehensive reform of NBS data would be a monumental task, requiring revisions of past GDP figures and annual growth rates.

The alternative may be to accept past reporting as a base, despite the acknowledged fabrications.

"If everything I've ever told you up till now is a lie and now I start telling you the truth, if I don't go back and fix anything, how would that possibly work?" Scissors said.

New rules

The new NBS reporting rules are not expected to take effect until the start of the 13th Five-Year Plan in 2016, China Daily said.

Last month, the NBS announced a limited revision of its GDP data affecting only the figures for 2013 following the results of a five-year economic census, the official Xinhua news agency reported.

According to the census, GDP was 1.92 trillion yuan (U.S. $309.4 billion), or 3.4 percent, more than previously reported, pushing totals for the year to 58.8 trillion yuan (U.S. $9.5 trillion).

In a statement, the NBS said the revision would raise the size of GDP for 2014, but it was too small to affect the official GDP growth rate, which is expected to be 7.3-7.4 percent.

Scissors believes actual GDP growth last year was closer to 5 percent.

NBS did not say whether the 7.7-percent official growth rate for 2013 would change, since the agency is still working on census adjustments for the previous years.

Scissors argues that the relatively small revision for 2013 following the census is a sign of how ingrained the inaccuracies in China's statistical system have become.

“If the reporting has been so bad, and it has, why was the census adjustment so small?" said Scissors. He argues that a meaningful reform of economic data can only be launched by President Xi.

"Until Xi and company are willing to say old data was bad, which is a confidence-shaker, reform will be very tightly constrained, even if genuine," he said.

Since taking power in March 2013, Xi has de-emphasized the influence of economic growth in considering career advancement for local officials.

"We should never judge a cadre simply by the growth of gross domestic product," Xi said in June 2013.

A document released after the Third Plenum of the Communist Party's Central Committee in November 2013 pledged to "reform the evaluation and promotion system for party officials," but it did not specify how.

In May 2014, the State Council issued a regulation on air pollution with a pledge that environmental protection efforts would be part of evaluations for promotions in the future.

"The State Council will hand over the assessment results to the party's organization as a key reference on the performance of senior provincial officials," the regulation said, according to Xinhua.

http://www.rfa.org/english/commentaries/energy_watch/china-economic-data-fraud-01122015111654.html