China Worthless Economic Statistics

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China's worthless economic statisticsBy Hari SudColumn: Abroad ViewPublished: February 19, 2010

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Toronto, ON, Canada, China is trying hard to project itself as one of the

worlds greatest economic power with worthless economic statistics is what Chinas National Bureau

of Statistics headed by Ma Jiantang said on January 28.

Ma was complaining during the national statistics works conference that provincial officials routinely

fudge and inflate numbers to make them look good. The rigged statistics become gospel and

economists and analysts all over the world use it to polish Chinas image. Chinese leaders smilingly

acknowledge the attention despite knowing that the statistics are fudged.

The margin of error in Chinas gross domestic product statistics over the past 20 years is at least 15 to

20 percent. It could have been higher, but the NBS corrected some errors though not all.

As per the U.S. Central Intelligence Agencys World Factbook, Chinas 2009 GDP at purchasing

power parity is US$8.8 trillion. If the figure is overstated by 20 percent, then the true value should be

US$7 trillion. But that still puts China much behind the United States and the European Union but

well ahead of Japan. India is behind with US$3.6 trillion. One should however note that China exports

62 percent of its output while India consumes 62 percent of its output internally.

Chinese leaders are unmindful of all the faulty statistics. They have acquired airs of greatness aroundthem and anybody that questions them is no longer their friend. The statistics are prepared to support

the Communist Partys agenda that includes 10 percent growth in a recession year. Therefore,

provincial leaders fudge the numbers to make them look good.

Professor Thomas Rawski, a Harvard educated Sinologist, has been following Chinese statistics for

the past 30 years. In 2003, he pointed out that Chinas GDP grew at about half the level of what it was

officially stated. Florence Chan, a Hong Kong based journalist holds a similar view. Both have studied

the five-layered Chinese statistics preparation process and both have pointed out errors in the

statistics.

The U.S. based bi-monthly magazine Foreign Policy said in their September 2009 issue, Western

media outlets often portray Chinese book-cooking as part and parcel of a monolithic central

government and omnipotent Beijing bureaucrats. But the problem is manifold, a product of centralized

government as well as decentralized officials.

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However, the lower levels of government cannot be exclusively blamed for cooking up the books, as

the pressure comes from the Central Government to meet targets. That explains why the fudging of

data is standard process.

Not to be misled by faulty statistics, China is still a very large economy. It is one of the largest

exporters of consumer goods and deposits US$300 billion to US$400 billion every year in U.S. and

European banks. It is the largest holder of foreign exchange deposits at US$2.2 trillion. Although its

status is envied by nations, it could deflate if all the statistical faults are cleaned up and their books are

open to public scrutiny.

The issue of Chinas faulty statistics has become more interesting especially in light of Mas

complaint. He has not been fired yet, which means there is some support to his complaint. He backed

his complaint by providing some insight in the provincial data submitted for consolidation.

According to Ma, data submitted by the provinces in the first half of 2009 exceeded the national GDP

figure calculated by NSB by 1.4 trillion yuan (US$204 billion), which is 10 percent of total GDP. The

error was 19 percent in 2004.

It is a systemic problem and is encouraged by some members of the Communist Party that were

former provincial lords and fudged numbers themselves. So, they do not question the people in-charge

now at the province level. However, for other politburo members, this is not a laughing matter. They

are hard stuck by the disclosures.

There is also a strong argument for inefficiency in the economic management of the country. Nobody

knows what is behind their US$583 billion stimulus package of 2008-09 or the US$1.5 trillion in

loans they advanced last year.

If 62 percent of Chinas total products and services were exported and if markets have shrunk, then

how can they claim some 10 percent growth in their economy for 2009? There is only one way it can

happen stockpile the output. In such cases, when the stockpile is released together with continued

output, goods flood the markets. That has dire consequences in the market place and the forgoing is a

very difficult subject for Chinese leaders to discuss. So, they hide behind a virtual wall of national

secrets.

The danger of inaccurate data is so great internally and externally that it could lead to a collapse.

Investors are weary of inaccuracies. They tend to pull their money out once the lies are discovered and

when foreign investors sell short, it creates havoc in the financial markets.

What is behind all the lies? The Chinese leadership urgently desires to look and behave like a

developed nation. So, they built brand new infrastructure to showcase their progress. Whether they

need it or not is a secondary matter, as long as it gives them a brand new look.


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China is presently classified as a developing country and in 10 years they desire to be classed on par

with developed countries like the United States, Europe and Japan. For that to happen they need 10 to

12 percent growth every year. This is the big reason behind all the lies and the Chinese leadership

does not mind the dangers in fudging data.

The Western media is coy about Chinas cookbook factory of statistics. It is still dubbed the land of

mysteries, dictatorship and strange ways of doing things. But they like China and their money

deposited in U.S. banks and do not hesitate to boost the egos of Chinese leaders by heaping praise on

them. The result is an overconfident, obtuse and arrogant China.

Every leader in the Western world knows that something is wrong in Chinas statistics. But none have

the guts to tell them. Had it been India, Indonesia or Russia, they would have made it a subject for

jokes and laughter.

There is only one possibility that the statistics could result in a major economic disaster. The plan by

Chinese leaders of creating a future based on fudged statistics may find no takers at a later time.

For example, China misunderstood their prosperity and spent some US$50 billion on the 2008 Beijing

Olympic games for prestige only. Presently, they are building an ultra modern infrastructure that could

hand them little return in the future.

They have a bigger problem on hand with the U.S. asking them to revise their currency value. Any

currency adjustments can put a lot of marginal manufacturing in China out of work and they will have

to invest more money in high value, high margin exports.

There is a strong case for changing Chinas process of preparing economic statistics. But the West is

not pressing China strong enough to change its behavior. The Chinese do not see the need, as inflated

statistics bring them accolades of praise.

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China Worthless Economic Statistics