Official Numbers That Cannot Be Relied On

Sydney Morning Herald

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 since parts of the economy hit the wall 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 the China Economic Times on Thursday.

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 government research centre with an estimate of 20 million.

There is 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 happily at 4 per cent - as it has for years.

The unemployment statistics are thought to be accurately compiled but badly designed. The problem is made worse by bureaucratic reluctance to make public survey information or allow others to conduct their own independent surveys.

And some believe the GDP accounts are manipulated.

The debate over the national accounts goes back to the Asian financial crisis, which is the last time the Chinese economy was in serious trouble. In 1998 GDP was said to grow by 7.8 per cent. But two economics professors who took different roads to a similar conclusion - Thomas Rawski in Pittsburgh, and Angus Maddison at Groningen University in the Netherlands, - thought the real number was more like zero.

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

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

In the 1950s the bureau was hijacked for propaganda work. During the Cultural Revolution it was shut altogether. In the early 1990s it was reprogrammed from Soviet accounting to standardised accounting.

Maddison said: "I don't think they are cheating; I think it's a just hangover after changing from the old Soviet accounting system."

Reminded of his argument that the 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 the 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 with 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 energy consumption figures are credible. In hindsight, it is clear that he was tripped up by fictitious coal statistics during a mass campaign against illegal coalmining. Coal production in 2000 was originally reported 30 per cent below real 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 2 per cent," Rawski said.

The work of Maddison and Rawski has been critiqued by Carsten Holz, at the Hong Kong University of Science & Technology. But that does not make Holz an ally of Chinese statisticians. He concludes they have shown themselves to be little more than propaganda tools for the Communist Party. How else, he asks, can you explain how one sub-category 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 industry number so they could produce a 2007 GDP growth rate at a merely sizzling 11 or 12 per cent rather than an alarmingly hot 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 local and provincial officials cooking their numbers that they began a national 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 internal inconsistencies and implausible findings in the 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."

Historical growth rates were never revised to match the new level of GDP. Government consumption was revised up by 41 per cent.

"The NBS reveals itself as, at best, a political organ. Is every one of the thousand pages of the statistical yearbook taking us for a ride?"

© 2008 Sydney Morning Herald

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