Number Is Up For Chinese Statistics

The Age

Monday December 8, 2008

JOHN GARNAUT

CHINA'S Communist Party is paying a price for its long-abusive relationship with statistics. For starters, it has no idea how many millions of people have lost their jobs recently.

"China's top leaders, experts, departments and ordinary people ... have been bamboozled by the 'wonderful' situation of the fake urban unemployment rate," wrote Zhou Tianyong, a researcher at the Central Party School in Thursday's China Economic Times.

The leadership has resorted to sending scouts to train stations around the country to count how many migrant workers are returning to their villages from their city jobs.

One researcher returned last week to a leading government research centre with an estimate of 20 million.

There's no way to cross-check if that figure is credible because the Government's narrow unemployment series, the registered urban unemployment rate, is still sitting at 4per cent - as it has for years.

China's unemployment statistics are thought to be accurately compiled but badly designed.

The problem is worsened by bureaucratic reluctance to release survey information or allow others to conduct independent surveys.

And some believe the gross domestic product accounts are manipulated.

The debate over China's national accounts goes back to the Asian financial crisis. In 1998, China's GDP was said to grow by 7.8 per cent. But two economics professors who took different roads to a similar conclusion - Thomas Rawski, at Pittsburgh, and Angus Maddison at Groningen University - thought the real number was more like zero.

An 8per cent argument over the world's second largest economy is not a small amount.

The two economists don't say China's national statiticians are dishonest. But they say the National Bureau of Statistics has a weight of history to overcome and remains hopelessly undermanned.

In the '50s, the bureau was hijacked for propaganda work. During the Cultural Revolution, it was shut down altogether. In the early 1990s, it was reprogrammed from Soviet to standardised accounting.

"I don't think they are cheating, I think it's a just hangover after changing from the old Soviet accounting system," Maddison said. Reminded of his argument that China's GDP numbers were deliberately "smoothed", he modified his answer: "I don't' think the people who built up the estimates are crook. I think the orders came from above."

Almost everyone agrees that China's GDP numbers were overstated in the late 1990s, but few are prepared to go as low as Maddison or Rawski.

The technical difficulty with accepting Maddison's revised GDP estimate is that he substitutes one seemingly arbitrary assumption about labour productivity in the services sector for another.

But Maddison is not giving any ground. "You can complain about that if you like, but what are you going to do?"

The difficulty with Rawski's argument about manipulated GDP numbers is that it partly hinges on an assumption that China's energy consumption figures are credible. In hindsight, he was tripped up by fictitious coal statistics during a mass campaign against illegal coal mining.

Coal production in 2000 was originally reported at 30per cent below actual levels, making it look like heavy industry had collapsed.

Rawski had other evidence that the economy had crashed in 1998 and 1999, including a slump in airline passenger traffic. He is sticking to his guns. "I think the same as what I thought back then, somewhere between minus 2 and plus 2per cent," he said.

Maddison and Rawski have had their work critiqued by Carsten Holz, at the Hong Kong University of Science and Technology. But that doesn't make Holz an ally of Chinese statisticians.

He concludes that they have shown themselves to be little more than propaganda tools for the Communist Party. How else, he asks, can you explain how one subcategory of industry value-added accounted for 109 per cent of all industry value-added last year? Holz suspects they lopped a bit off the total so they could produce a 2007 GDP growth rate at a merely sizzling 11 or 12 per cent rather than an alarming 14 or 15 per cent.

For years, the sum of GDP reported by the provinces has vastly exceeded the national number. The Chinese leadership was so concerned about provincial officials cooking their numbers that it launched a campaign against statistical "falsification and embellishment". But the 2004 economic survey led to a 17 per cent upward revision in GDP - showing the provinces had it about right in the first place.

And the internal inconsistencies and implausible findings contained in the 2006 revisions led to further questions.

"One may begin to wonder about the possibility and likelihood of professional statistical work in China," writes Holz in the China Economic Quarterly.

"For the time being, the 2006 revisions imply that Chinese statistics have to be taken with a rock of salt." As the downturn worsens, China's statisticians have a chance to show they have outgrown old habits of bending economic numbers for political ends.

© 2008 The Age

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