China’s Numbers Game

The Chinese government has painted a promising picture of the country’s economic recovery. Last month, the government released its strong second quarter economic figures, posting a robust growth rate of 7.9 percent that is widely attributed to the enormous 4 trillion RMB stimulus plan and a loose monetary policy. Optimistic economists immediately revised the country’s annual growth rate upward.

Yet the story may not be quite so rosy: a number of sources have cast doubts on the accuracy of China’s figures. A blog article by Floyd Norris on the New York Times website, for instance, speculates that first quarter GDP growth was actually significantly lower by looking at the country’s recent energy consumption patterns. With energy consumption typically possessing a high correlation with GDP growth, the decrease in the country’s first quarter energy consumption suggests significantly weaker economy performance than that officially reported.

Last Wednesday, the Financial Times featured an article along these same lines with the headline “China’s Growth Figures Fail to Add Up.” This article adds further skepticism to the quality of the country’s official economic figures by demonstrating that the aggregate of provincial economic data far exceeds the numbers produced by the central government. Unfortunately, economic output is not the only area where local governments are overly optimistic: China’s stimulus plan has run into trouble as the contributions from local governments have fallen far short of their ambitious commitments.

The authors attribute the disparity in the numbers to the common practice among local governments of falsifying reporting of financial and economic figures. With promotions depending overwhelmingly on economic performance, local officials have a strong incentive to report high economic growth regardless of the facts on the ground. The National Bureau of Statistics is likewise under pressure to produce rosy numbers so that the party can boost ordinary citizens’ confidence in a regime that relies on economic performance as the source of its legitimacy. As a result, fabricated economic data flows to the top without scrutiny to create the appearance of a robust and energetic economy.

Within China, there is growing opposition to the GDP numbers games played by regional governments. Guangdong Party Secretary Wang Yang, for instance, describes how local governments can – and have – manufactured GDP growth simply by building a bridge, demolishing that very same bridge, and then rebuilding it to produce triple the economic growth. To discourage such distortions, Secretary Wang argues that the government should track not only overall economic output but instead shift its focus to more specific metrics based on industry upgrading and structural reforms.

A number of scholars would like to take this a step further, arguing that the government should focus not only on economic performance but also give strong consideration to the quality of governance. To facilitate such a shift, the Unirule Institute of Economics, a prominent Beijing-based think tank, released its Public Governance Index, which ranks 30 capital cities in China on their quality of governance. This publication received extensive media coverage (see the Summer Edition of the Overseas Report). The prominent Phoenix Weekly, for instance, included a detailed report on the Index in its May edition. This heavy media coverage resulted in significant debates across the country. For example, the local online media in bottom-ranking Fuzhou City produced a series of discussion on the quality of the city’s public governance and the many opportunities for improvement (characteristically, much of this online content was later blocked).

The widespread discussion on public governance sparked by Unirule’s work has resulted in significant public awareness that will hopefully drive future reforms. With renewed public pressure, the party has finally begun to realize the limitations of relying on a single economic measure for bolstering its legitimacy and assessing the performance of its leaders.

Published Date: August 13, 2009