For years we've been writing about "fake data" coming out of China's economic reports. As an example, we reported the following chart on import data back in April (see "The Chart Proving That China's Trade Data Has Never Been This Fake"). Can anyone spot the outlier?
Now, China's "top statistician" has confirmed via an article in the "People's Daily" newspaper that "some local statistics are falsified, and fraud and deception happen from time to time." Wow, so there's a chance that China's economy didn't actually grow at a precise YoY rate of exactly 7.00% for the past decade...that always struck us as unlikely. Per the Financial Times:
China’s top statistician has acknowledged the country’s problems with falsification of economic data, pledging severe punishment for perpetrators in a nod to widespread suspicion that official numbers often fail to reflect true economic conditions.
“Currently, some local statistics are falsified, and fraud and deception happen from time to time, in violation of statistics laws and regulations,” Ning Jizhe, director of the National Bureau of Statistics, wrote in a column for Communist party mouthpiece the People’s Daily on Thursday.
Foreign economists and investors have long expressed doubts about China’s economic data. Most prominent are concerns about gross domestic product figures. Compared with other countries. China’s inflation-adjusted GDP growth rates are remarkably stable from quarter to quarter, even as nominal figures show considerable volatility. The NBS has denied charges that it manipulates inflation data to massage headline growth figures.
While President Xi Jinping has called for "seriously punishing statistical falsification and fraudulent behavior," others points out that political influence over statistical data is the precisely the problem, not the solution. Of course, with local politicians evaluated on their ability to meet or exceed centrally planned growth targets, it's no surprise that the "sum of provincial GDP figures" consistently exceeds the national calculations.
In October a powerful Communist party task force led by President Xi Jinping issued policy guidelines calling for “increasing data accuracy” through methods including harsher penalties for falsification. Mr Ning’s article lauds the achievements of his agency in implementing these guidelines.
“Seriously punishing statistical falsification and fraudulent behaviour benefits the rule of law and the upholding the credibility of the party and the government,” Mr Ning wrote.
Critics of Chinese statistics have consistently argued that political interference in statistical compilation is the problem, not the solution. Communist party officials, especially at the local level, are still evaluated largely on their ability to meet or exceed economic growth targets. For many years, the sum of provincial GDP figures has far exceeded the national total. The party has taken tentative steps in recent years to reduce the role of economic growth targets in evaluating cadres’ performance, but strong incentives remain.
Of course, while cynics may view this as a devastating admission, we suspect investors will promptly dismiss the potential impact of years of overstated GDP figures and quickly buy more stocks.