China's economy may not be as big as you were told

• A report by the Brookings Institution, a Washington DC-based think tank, claims what economists have long suspected: China’s economic data is fudged.
  
• The report indicates that the size of China’s economy is around 12% smaller than official data shows.
  
• This is because real GDP growth has been inflated by an average of 1.7 percentage points between 2008 and 2016, due to the overstatement of local data as well as inflated investment and industrial production figures.

People have been sceptical about the accuracy of China’s economic data for quite some now.

Now, a recent study by the Brooking Institution, a Washington DC-based think tank, claims what economists have long suspected: China’s GDP data is inflated. And the reason for the inaccuracy? Gaps in the system of regional data collection.

The report indicates that the size of China’s economy is around 12% smaller than official data shows. This is because real GDP growth has been inflated by an average of 1.7 percentage points between 2008 and 2016, due to the overstatement of local data as well as inflated investment and industrial production figures, the report argues.



In late 2015, government officials in Northeast China admitted to overstating economic data such as fiscal revenue and household income to show higher growth in their provinces. In early 2016, the Communist Party of China initiated an anti-corruption investigation into the the head of the country’s statistics agency, the National Bureau of Statistics, over the alleged inaccuracy of data depicting the country’s shrinking growth.


The authors of the Brookings report used “value-added tax” figures to adjust the official Chinese data, citing the data point’s relative accuracy. Tax data has been tabulated on a computerised basis since the mid-2000s. The report’s authors compared value-added-tax on industrial companies with their reported industrial output.


GDP figures are always a politically insensitive issue. Just ask the Modi administration, which recently released a back-dated series of GDP data that indicated that growth under the previous Congress government between 2004-05 and 2013-14 was less than what the current BJP-led administration has achieved over the last four years.

However, GDP data takes on a deeper meaning for the Chinese government. Growth targets are sacrosanct and it routinely evaluates local officials based on economic growth in their respective regions.

The Brookings report explained that the National Bureau of Statistics had a difficult time ascertaining the accuracy of local data and subsequently adjusting it. The body did, however, pledge to exercise greater control of the accounting of provincial data last year to prevent fraud. The national agency will now be tasked with compiling regional data on its own.

The conclusions of the study further compound China’s economic woes, indicating that is current slowdown could be worse than expected.

The country recently forecast a growth rate of 6-6.5% for 2019 - its lowest rate of economic expansion since 1990. The sluggish rate of growth is attributable to trade tensions and a contraction in manufacturing, private investment and credit growth.


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