China’s Shady Statistics

China’s statistics chief was detained yesterday as part of a graft investigation. The South China Morning Post reports:

The Communist Party’s anti-graft watchdog made the dramatic announcement about National Bureau of Statistics chief Wang Baoan just as state radio aired comments Wang made earlier in the day at a press conference on the economy [. . . ]

The Central Commission for Discipline Inspection said Wang was under investigation for “suspected serious violations of discipline”, a phrase that often refers to corruption. The CCDI’s statement was brief and did not suggest what the case might involve.

There’s no evidence the arrest had anything to do with the quality of the statistics themselves, and this story serves to underscore the breadth of President Xi’s corruption crackdown. But the detention is an ironic development considering Beijing’s notoriety for falsifying official numbers, and it comes amidst debates about the validity of China’s official statistics. The Wall Street Journal reports on a Chinese economist who believes the country’s real rate of GDP growth might be closer to 4.3 percent–5.2 percent than to the officially given rate of 6.9 percent:

Given weaker industrial output in China and more than three years of industrial deflation, a 6% expansion for manufacturing in 2015 is questionable “no matter how the number is counted,” said [Xu Dianqing], who added that he believes it’s more probable that industry and construction grew at most by 2% last year and perhaps not at all.

That translates into economic growth that tops out at 5.2% last year and perhaps something in the 4s, assuming the official agriculture and service sector growth figures are correct, he said.Mr. Xu said it’s unlikely that the service sector– sometimes cited as an explanation for growth rate discrepancies – did better than reported by authorities.

Xu is not alone; economists have long assumed that China’s growth numbers are unreliable. In a 2007 cable, later leaked, Premier Li Keqiang (who was then a governor) confirmed that the GDP numbers are edited by party officials. So, for the most part, everyone just assumes that the numbers are at least somewhat off, even when the economy is doing well. But during the present slowdown, the official statistics have come under heightened scrutiny.

This is, potentially, a very big deal. Because while a few percentage points’ inaccuracy in one year might not seem all that significant, over the course of many years—perhaps even pushing into decades—the real numbers and the official numbers would start seriously to diverge. If China has been systematically overestimating its GDP growth for many years, its economy could be much smaller than people assume.No one knows what China’s actual growth numbers are, or by how much they might be off, or for how long they’ve been misreported. But the inflation of important numbers is a contributor to the global China bubble that we’ve been covering. Around the world, public and private investors bet on rapid and sustained Chinese growth for many years. From Nigeria to South Africa, they invested in mines and dug oil wells, and built roads and bridges. Then the bottom fell out of the commodities market when China stopped buying so much, and now around the world many are scrambling to move their money into safer assets. And although economists and investors often admitted that the official growth numbers were iffy, the global frenzy in the recent past has nonetheless been premised on the general trend lines and magnitudes indicated by Beijing’s statisticians.All of this is very important for U.S. diplomats and military analysts. As the United States works on its China strategy, it’s key that we know more about what we’re dealing with. How big is China? How fast is it growing? These are questions that matter not just to the CEOs of South African mining companies, but also to world leaders looking to ensure stability in a changing world.