Data Fraud At Chinese Province Suggests Local GDP Numbers As Much As 20% "Overcooked"

Tyler Durden's picture

One month ago, in delightful, if anticipated, confirmation that much if not all of China's data has been cooked and fabricated as so many skeptics suspected, we reported that according to the People's Daily, the rust-belt province of Liaoning had admitted to fabricating fiscal numbers from 2011 to 2014. The fabricated economic data was meant to show a state of economic strength with fiscal revenues inflated by at least 20%, and some other economic data were also false, the paper said, without specifying categories.In short, the fabrication opened a hornet's nest: if one Chinese was doing it, then why not all, and by how much was the real data off?

But why manipulate the numbers to paint a rosier picture? For obvious reasons: the data were made up "because officials wanted to advance their careers." The fraud misled the central government’s judgment of Liaoning’s economic status, he said, citing a report from the National Audit Office in 2016.

Yet while it was this confirmation of data fraud was gratifying, what was absent was the scale of the fraud, as having the real and fake numbers would provide a useful rule of thumb into just how cooked all of China's books are, not just those in Liaoning. Conveniently, today we got the answer courtesy of the FT, which reported that the economic output of the province in question shrank by 23% in nominal terms last year, according to official statistics, showing the extent to which officials had previously exaggerated performance in China’s struggling rust-belt.

The sudden drop in provincial gross domestic product is only partly due to a fall in the real economy: in inflation adjusted terms, GDP fell by 2.5 per cent according to the national statistics bureau. The rest was undoing the book cooking: "The main reason for the decline, analysts say, was officials’ attempts to undo the effects of previous over-reporting."

Further evidence of data fabrication can be seen in Liaoning’s fixed-asset investment figures, which fell 64 per cent in 2016. China International Capital Corporation, a partly state-owned investment bank, said the drop in investment raised doubts about previous years’ figures.

The Lianoing scandal also appears to have convinced even those not overly skeptical, that no Chinese data can be trusted going forward.

“The sharp decline was not only a result of economic downturn but also reflected the correction of its previously inflated data,” wrote CICC last week.

“Liaoning have had stark issues with their data over the past few years. Does that mean other provinces do too? That's definitely the case — provincial GDP is always higher than national GDP,” said Jonas Short, head of China research at NSBO, an investment bank.

It gets more ironic: the current Premier Li Keqiang was the top official in Liaoning from 2004 to 2007, and once decried GDP data as “man-made” and therefore unreliable. Instead, he preferred three indicators of industrial activity: electricity consumption, railway cargo volume and loans extended by banks. However, such indicators are less relevant to measuring China’s economic output now that the dominance of traditional industries is fading.

While it is still too early to extrapolate, if all of China's data is "overcooked" by 20%, assuming the country's debt statistics are reliable, it would mean that instead of 300% as per the IIF's latest estimate, China's real debt/GDP is roughly 375%, and fast approaching the world record holder, Japan, which remains untouchable at 400%. The implications for the global economy and capital markets - once a bubble of this magnitude bursts - hardly need elaboration.

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Jim Sampson's picture

My shocked face ---->   :o

Raffie's picture

Hmmmm .. I'm sure its a glitch and Monday will come and go and China will not even blink.

johngaltfla's picture

So does this mean our banks are overstating their earnings by 20% too....whoops.

Raffie's picture

Banks wish they was ONLY %20.....

limited man's picture
limited man (not verified) Raffie Feb 25, 2017 4:22 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do...

New_Meat's picture

c'mon MDB, that sales pitch is so stale, can't be drivin much traffic, can it?

From here?

limited man is very limited, this may be a bot, a very limited bot

orangegeek's picture

lying chi-coms - their whole fucking economy is a fraud.


MOAR empty cities please!!!

silverer's picture

The good thing about the empty cities is people will have an alternate place to hang out when the economy fully crashes.

Rufus Temblor's picture

All the money spent on those empty cities was counted as GDP, which is consistent with GDP accounting.

Ecclesia Militans's picture

An expected outcome when a majority of the population poops on the side of the road while trying to maintain the facade of a 21st century economy.

milking institute's picture

No surprise  here since failure to meet growth targets will subject the avarage province beaurocrat to severe public beatings at the least OR cuts in their Paris shopping bonuses at worst. or,in extreme cases,that state provided Audi A8 with driver will be denied and the perpetrator will be relegated to a 2016 Hung Lo,model "Aspire".  what would YOU do?

TrustbutVerify's picture

Isn't fraudulent data like this just one method of currency manipulation? And secondarily, the practice of publishing phony numbers, when the entire nation of China does it, brings investment dollars (Euros, etc) from around the world which can be used to make investments outside of China. Its a circular, yet international (!) Ponzi.

Do you buy Chinese made goods? You probably wouldn't know it if you did.

silverer's picture

That's pretty normal. All the western countries do it. It's the "currently trending" latest craze.

assistedliving's picture

Liaoning aka Kyle Bass

just never learn CtrlAltP keeps working and working....until it doesn't

stozi's picture

I lived in China from 2002-2009. That anyone whose job it is to know these things ever doubted that Chinese data was cooked is insane. China's fundamentally about keeping up appearances no matter how barren the substance is. Corruption is so endemic that it's not considered corruption, for them networking is naturally monetarily lubricated. a severely machiaellian cultural background and the Stalinist legacy (what russians call 'blat) combine into a totally pragmatic, rule and ideal disregarding, self-serving culture of gaming the system and signalling whatever wants to be heard. I thought they'd go 'lost decades' by 2012, still little doubt it'll be here soon

Dr. Bonzo's picture

I thought they'd go 'lost decades' by 2012, still little doubt it'll be here soon

Gaaaaawd, let's fucking hope so. The best economic episodes I recall were the Great Deflation that hit Hong Kong in '04 in the wake of SARS, and Japan this century. Deflation is the shit. Money stretches for miles, businesses fight hard for your dollars, custumer service is excellent and even a pauper can live like a king. The central bankers are fooling everyone with this inflation bullshit....

Hongcha's picture

Stozi, then you know the saying, "Big fish eat little fish".

I've been in ADRs for the 4 big banks (PBOC, and Bank of Agr, Commercial and Industrial) for a year and they are doing well for me.  Doesn't matter what lay underneath, they are cash cows.  That's my story I tell to myself.

I may just sell the other 3 positions and roll it all into the People's Bank (BACHY).

I don't like 5-digit trading symbols but that's all I find.

I do not think the Party is going to let anything besmirch the image of the bank named after the country.  If ever there was Too Big to Fail, that's it.

Totalitarian Borgs are easy to invest in.

Quivering Lip's picture

Yep and the S&P is trading at 17.9 times earnings based on what they COULD have made if it weren't for those 30 consecutive quarters of "One time" charges.

No made up seasonally seasonally adjusted numbers coming out of our government. Birth/death model seems to be working quite well. No make believe numbers coming out of our banks. Shit we don't even know what the "federal" reserve has on their books, but its all above board over here. 

Dr. Bonzo's picture

20%? Pfffffff... it's probably closer to 200%. Even this admission is a form of face-saving.

Sudden Debt's picture

They'll cook and eat everything...

Dead Indiana Sky's picture

"China's struggling rust belt."...........I'm really bad with dates and timelines, but doesn't it seem too soon for them to have one of those?

ObserverFromMontreal's picture

Real bad air quality.....higher corrosion rates

smallbedbug's picture

And the US is not cooking its books...go figure...

Let it Go's picture

The Chinese Academy of Social Sciences has forecast China's economic growth will further slow in 2017 to 6.5 percent, this would be the slowest pace in more than 25 years. The fact is many of us with an eye on China argue this number is still far too high. A big reason numbers are "fudged" is to gain political favor with higher ups.

A great capital unwinding is continuing as money that has flowed into China for decades attempts to leave the country and taking with it much of the wealth it has produced. These massive capital outflows are distorting both currencies and economies throughout the world. More thoughts on this issue in the article below.

83_vf_1100_c's picture

I predict another shortage of .22LR.

Rufus Temblor's picture

Which is strange since so few guns use that caliber.

truthalwayswinsout's picture

The only real numbers coming out of China are the numbers of people leaving with as many suitcases of cash, bitcoins, or real estate purchased overseas.

sinbad2's picture

The Chinese copy everything America does.

CHoward's picture

America is greaterer - we'll never admit we cook our books.  No sirree! 

Rufus Temblor's picture

Government spending is counted as GDP. The Chines government, in particular, spends money to grow GDP. So the whole concept that GDP shows economic growth is deeply flawed. Then there is the fraud, as shown in the article. Do you believe anything a Communist tells you?

Youri Carma's picture

Rule of thumb: Cut the official China GDP number in half and you've got a number much closer to reality.

Hong Kong GDP To Expand 2-3% In 2017
2/21/2017 (RTT News)

ds's picture


William Dorritt's picture

Brazil, Australia, and South Africa all cratored when their coal and iron ore and other ore shipments to China collapsed by 40-50% in 2016


DW TV did an interview at the Port of Hamburg where the Captain of a Large Chinese Fagged Super Container ship volunteered he arrived at 30-40% less cargo than 2015, and was leaving port 50% empty instead of the usual 10%

William Dorritt's picture

General government final consumption expenditure (% of GDP)

World Bank national accounts data, and OECD National Accounts data files.

..................1960 vs, 2015

United States 15.6 14.4

China ..........13.0 13.8


Data by Country.....World Bank tracks Carbon Emissions