Asia Times: China


	May 4, 2002	atimes.com

China

China: Hot economy or cooked books?
By Uwe Parpart, Editor, Asia Times Online

Arguably, none other than "economic czar" Premier Zhu Rongji himself started all the current hubbub about China's economic growth statistics when he complained at the March 2000 National People's Congress that "falsification and exaggeration are rampant" (China Daily, March 6, 2000). A lonely voice has become a chorus. To be sure, Doubting Thomases had questioned the veracity of official Chinese gross domestic product (GDP) data before Zhu. But now they are everywhere, at home and abroad, from Chinese National Bureau of Statistics (NBS) officials speaking of shuifen (water content) in the stats to Hong Kong investment-bank analysts to Melinda Liu in her April 1 Asia-section Newsweek International feature.

That there is something seriously amiss with China's economic data is as obvious as it is unsurprising. Time and again over the past few years have we been confronted with provincial growth figures that, when aggregated, lead to substantially higher national growth rates than the NBS - after unexplained "corrections" - has reported. Survey-based statistical sampling methods used in other major economies to determine GDP growth are in their infancy in China. Instead, the central government still largely relies on reports by provincial authorities, and those reports generally come in at growth levels equal to or higher than those targeted by central government policy makers. Pressure to affirm official growth targets handed down from Beijing overwhelms local and provincial statistical bureaus. Party political careers are at stake.

And there are other glaring discrepancies. University of Pittsburgh economist Thomas G Rawski, now something of a media celebrity for his research and critical conclusions on China's GDP statistics, points out that official figures show real GDP growth of 24.7 percent between 1997 and 2000, while during the same three years, energy consumption dropped by 12.8 percent. "The implied reduction of 30 percent in unit energy consumption over three years seems implausible, despite the rapid growth of computer manufacture and other activities with low unit energy consumption," he says.

Other quantitative inconsistencies are as striking, notably that, particularly in rural areas, retail sales rise more rapidly than household income, implying an increase in the share of consumption spending in household income, when at the same time economic authorities complain that "moderate income growth has intensified people's tendency to save money" and explain that deficit spending "was introduced in 1998 to overcome insufficient domestic demand and dwindling exports". Rawski believes that instead of the official real GDP growth rates for the period of 1998-2001, an alternative set of rates showing cumulative growth of maximally 11.4 percent rather than the 34.5 percent the government has reported is greatly more realistic. (See table below.)

China's Economic Growth (%)

					Cumulative Growth
	1998	1999	2000	2001	1998-2001
Real GDP Official	7.8	7.1	8.0	7.9	34.5
Alternate	-2.0/+2.0	-2.5/+2.0	2.0/3.0	3.0/4.0	0.4/11.4
Energy Use	-6.4	7.8	1.1	1.1	-5.5
Consumer Price Index	-0.8	-1.4	0.4	-0.5	-2.3

No serious close-up observer of developments in China will entertain the notion that the country experienced zero economic growth over the 1998-2001 period. So forget the lower end of Rawski's alternative data range. His higher-end estimate, however, cannot as readily be dismissed - though, especially in 2000, growth almost certainly well exceeded 3 percent. Large armies of dislocated rural laborers camp out on the outskirts of China's major cities; urban unemployment has risen massively over the past several years due to state enterprise shut-downs and downsizing. At growth rates between 7 and 8 percent, such problems (or their severity), according to Zhu Rongji's and other economic officials' own judgment, should have been avoided. The facts speak for themselves: Growth has been significantly overstated; the social problems (as evidenced by recent labor unrest in the northeastern "rust belt") arising from slower economic and employment expansion are real.

But what conclusions are we to draw from this? Whether annual economic growth between 1978, the year Deng Xiaoping's reforms commenced, and 2001 averaged 9 or 7 percent and has slowed considerably as the result of the Asian crisis since 1998, the reforms have been a resounding success. The economy is continuing to undergo rapid transformation, and when there is fast change in a country of 1.3 billion people, displacement of tens of millions at any given point is unavoidable. The conclusion that temporarily slower growth will lead to social unrest on a scale that could seriously undermine the reform process appears unwarranted.

The key issue is whether the entrepreneurial drive that creates private enterprise and new jobs and made 2001 the first year in which private companies produced a larger share of overall economic output than the public sector is sustained. There is no reason or sign that it won't. Within the framework of vibrant private enterprise development and as market forces rather than political growth targets shape economic growth, China will experience the same ups and downs of its annual economic fortunes as free-market economies. In that context, any one or two years' GDP data are of diminishing relevance. Have Chinese authorities lied to the world about annual growth? Perhaps. But as the continuing growth of foreign investment shows, the world isn't particularly bothered.

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