China Data Fraud Spreads

A report cites inflated power output numbers.
An analysis by Michael Lelyveld
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Ma Jiantang discusses China's GDP at a press conference in Beijing, Jan. 17, 2012.
Ma Jiantang discusses China's GDP at a press conference in Beijing, Jan. 17, 2012.

After years of concern that China's official statistics have exaggerated economic growth, reports have raised suspicions that the data may be minimizing this year's downturn.

In a front-page story on June 23, the New York Times pointed to signs that falsification may be more widespread than previously thought.

Problems with economic data from the National Bureau of Statistics (NBS) have been known for years.

Most recently, the NBS tried to keep local officials from pumping up their numbers and painting rosy pictures of their success by requiring 700,000 companies to report directly to the agency, as RFA reported in February.

In April, NBS chief Ma Jiantang said officials were trying to beat the new system by ordering companies to submit inflated production and profit results, RFA also reported.

But the Times suggested that officials may also be overstating electricity production, depriving analysts of a traditionally more reliable indicator of real economic health.

As evidence, the paper cites record-high stockpiles of coal at China's main distribution center, Qinhuangdao port in northeastern Hebei province, suggesting that power consumption is falling.

But the National Energy Administration (NEA) reported that electricity use rose 5.2 percent in May from a year earlier, edging up 1 percent from April. Coal prices at the port have dropped to a 20-month low, the official English-language China Daily said.

The Times cites an economist with ties to the NBS as saying the agency has started making inquiries into possible inflation of the power figures. But it also quotes economists and energy experts who have relied on the data.


Derek Scissors, a senior research fellow in Asian studies at the Washington-based Heritage Foundation, sides with those who see the power numbers as suspect.

"The figures are definitely being falsified. They've been falsified for a long time," said Scissors in an interview.
"Electricity production isn't sacrosanct."

The amount of fudging is important because global markets have been reacting to any news on the direction of the world's second largest economy.

The true figures could help economists tell whether China is in the midst of a moderate slowdown in growth or a genuine slump.

But Scissors said that no sectors have been immune to falsification.

"If you believe, as I do, that the national statistical authorities smooth their growth to make it slower when it's really fast and make it faster when it's slow, they're not going to leave out electricity," he said. "They're going to falsify the electricity figures when someone points out that they don't match the GDP figures."

Chinese authorities have repeatedly recognized the problem of data fraud and have taken various steps against it over the years.

In February, a People's Daily editorial blasted local officials for "fabricating statistics to overstate political achievements."

"In some regions or public organizations, leaders are engaged in lying, empty talk, fabricating statistics, or trumping up political achievements," the Communist Party's flagship paper said.

Gross domestic product (GDP) figures from China's 31 provinces, autonomous regions, and municipalities routinely exceed the national total by a substantial amount, forcing the NBS to make adjustments under an undisclosed formula.

In the most recent scandal in April, the NBS reacted sharply after the 21st Century Business Herald found that officials were pressuring companies to submit figures that would "converge" with earlier exaggerations.


But proving the power numbers are phony would be a difficult task, since the only evidence relies on data from other sectors that may be falsified.

Some of the biggest power consumers, for example, are industries that support construction, like steel, cement, and flat glass. These have been hit hard by Premier Wen Jiabao's campaign to curtail runaway property development and bring housing prices down.

Crude steel output has been up by a slight 2.2 percent in the first five months of the year, the National Development and Reform Commission (NDRC) reported, while flat glass production fell 1.7 percent.

Cement output grew 5 percent, down from a 19.3-percent growth rate a year earlier, the official Xinhua news agency reported. But it is unclear whether these are results that support the theory of a genuine downturn or only data that the industries think the government wants to hear.

The uncertainty is compounded by the coal buildup because the NBS has stopped reporting monthly coal figures.

Last year's coal consumption estimate of 3.7 billion tons may be grossly understated due to uncounted or illegal production and provincial coal trade.

In a Stanford University paper last year, China energy expert Kevin Jianjun Tu at the Carnegie Endowment for International Peace reported that coal consumption figures from the provinces have often exceeded national estimates by over 500 million tons.

The rising pile at Qinghuangdao port could be evidence of inflated power reports, or just a sign of more illegal coal production than the economy can use.

'Lagging indicators'

Scissors believes it's the result of a real downturn in last year's fourth quarter that has already passed, rather than a sudden buildup from a current slump.

"That's the weakness of the economy six months ago. It doesn't mean the economy is strong now. It doesn't mean the economy is weak now. We get a lot of lagging indicators," he said.

Officially, China's GDP rose at an 8.9-percent rate in the fourth quarter and 8.1 percent in the first quarter of this year. Premier Wen has set a target rate of 7.5 percent for 2012.

Global markets have been on edge in expectation of China's second-quarter results to be released in mid-July. But debate over indicators and falsification may make the official figures academic.

"I think the economy is growing now. I don't think it's growing at a seven-and-a-half percent clip, but I don't think it's growing at 1 percent either," Scissors said.





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