China’s 2015 GDP Was Exaggerated By Fake Data, Analysis ShowsBy
Growth probably slowed markedly, Bloomberg Economics says
Provinces look to have overstated data between 2011 to 2015
China’s growth rate in 2015 was probably overstated by “a couple of percentage points,” according to new data analysis by Bloomberg Economics.
Gross domestic product at the provincial level was consistently overstated between 2011 and 2015, calculations that cross-referenced energy consumption with output data show. But the exaggeration appears to have shrunk in 2016 as a method of inflating fiscal revenues was closed off. The national GDP number was probably overstated in 2015 as well, according to the research by Bloomberg economists Tom Orlik and Qian Wan.
Chinese data has long been dogged by concerns over fudging, with a recent spate of revisions to provincial growth and revenue data reviving questions about the reliability of national statistics. In the past year, the rustbelt province of Liaoning and Inner Mongolia in China’s north have admitted to cooking their data.
Various Proxies for Growth Show 2015 Slowdown
Data faking also raises questions about the country’s debt picture, according to the economists, because if revenue and output growth is lower than people thought, there is less money to for local governments to make repayments.
The national GDP reading for 2015 already stood out because growth only slowed by 0.4 percentage point to 6.9 percent, in a year when China endured a botched yuan devaluation and severe financial market turbulence.
Though a persistent gap between the sum of provincial data and national GDP signals that officials have previously corrected for the problem, Orlik and Wan note that in 2015, the gap between the two data points narrowed.
Furthermore, the economists say that if you use electricity use as a proxy for actual economic growth, provincial GDP ran “between 1.2 percentage points and 3.1 percentage points lower than the official growth rate” between 2011 and 2015.
China is probing fake data at the provincial level, with local government officials incentivized in the past to inflate the numbers as a way of advancing their careers. The provinces of Qinghai, Yunnan, Chongqing, Guizhou, and Shaanxi stood out as having both the most questionable growth data and the highest ratio of debt to GDP, according to the report.
If Beijing does start to allow defaults on borrowings of local governments, those provinces may face the toughest scrutiny from investors worried about credit risk, the economists wrote.
“It is no easier to have confidence in alternative estimates of China’s growth than it is in the heavily-politicized and mysteriously-stable official data,” Orlik and Wan argue. “That said, the comparison of provincial and national data, and a range of alternative indicators, are suggestive of an official growth rate for 2015 that may have been overstated by a couple of percentage points.”