Wikileaks Disses Chinese GDP Stats

We’ve harrumphed more than occasionally on the dubious quality of Chinese official releases (see discussions on GDP, inflation, and other drive-by-data-shootings for a selection of past grumblings).

So we are delighted to see that Wikileaks is on this beat too. (hat tip the Pragmatic Capitalist, courtesy reader Arthur K). From a March 2007 cable on a discussion between Clark T. Randt and “Fifth Generation Star Li Kequiang”:

¶1. (C) Liaoning Party Secretary Li Keqiang, a front runner for elevation to the Politburo this fall and potential successor to President Hu Jintao in 2012, described the challenges he faces as a provincial leader to the Ambassador over dinner on March 12. Engaging and well-informed, Li related that despite brisk economic growth, Liaoning’s income gaps remain severe. To create a “harmonious society,” he has tried to guarantee minimum living standards by providing new housing to the destitute and a job to every household. The public is dissatisfied with education, health care and housing, but it is corruption that truly incenses them…..

¶4. (C) GDP figures are “man-made” and therefore unreliable, Li said. When evaluating Liaoning’s economy, he focuses on three figures:
1) electricity consumption, which was up 10 percent in Liaoning last year;
2) volume of rail cargo, which is fairly accurate because fees are charged for each unit of weight; and
3) amount of loans disbursed, which also tends to be accurate given the interest fees charged.

By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are “for reference only,” he said smiling.”

This Wikileaks release, like so many others, is not news to anyone who has been on this beat. For instance, Foreign Policy had a 2009 feature article entitled “How China Cooks Its Books”. Some extracts:

In February, local Chinese Labor Ministry officials came to “help” with massive layoffs at an electronics factory in Guangdong province, China. The owner of the factory felt nervous having government officials there, but kept his mouth shut. Who was he to complain that the officials were breaking the law by interfering with the firings, he added. They were the law! And they ordered him to offer his workers what seemed like a pretty good deal: Accept the layoff and receive the legal severance package, or “resign” and get an even larger upfront payment….

Such open-secret programs, writ large, help China manipulate its unemployment rate, because workers who “resign” don’t count toward that number. The government estimates that roughly 20 million migrant factory workers have lost their jobs since the downturn started. But, with “resignations” included, the number is likely closer to 40 million or 50 million, according to estimates made by Yiping Huang, chief Asia economist for Citigroup. That is the same size as Germany’s entire work force. China similarly distorts everything from its GDP to retail sales figures to production activity. This sort of number-padding isn’t just unethical, it’s also dangerous: The push to develop rosy economic data could actually lead China’s economy over the cliff….

Pressure to distort or fudge statistics likely comes from up high — and it’s intense…

But local and provincial governmental officials are the ones who actually fiddle with the numbers… “The higher [their] GDP [figures], the higher the chance will be for local officials to get promoted,” explained [Gary] Liu.

I strongly encourage you read the piece in full.

And more odd sightings confirm the idea that all is not as rosy in China as the official data would have you believe. Consider this tidbit from the WSJ ChinaRealTime blog (hat tip Michael Perelman):

Despite entering a robust economy that seemed to weather the financial crisis as if were it a middling squall, China’s college graduates on average make only 300 yuan, or roughly $44, more per month than the average Chinese migrant worker, according to statistics cited over the weekend by a top Chinese labor researcher and reported today by the Beijing Times (in Chinese).

“It’s the first time China has faced such a situation,” the paper quoted Cai Fang, head of the Chinese Academy of Social Science’s Institute of Population and Labor Economics, as saying Saturday at a conference on Chinese youth. “It’s hard to say how long this situation will last.”

By Mr. Cai’s calculations, college graduates have consistently earned around 1,500 yuan a month since 2003. Migrant workers, meanwhile, have seen their monthly wages rise from an average of 700 yuan to 1,200 yuan over roughly the same time period, MR. Cai said, according to the Beijing Times.

China has faced a surfeit of college graduates in recent years, thanks in large part to an enrollment boom that has seen the university student population swell by as much as 30% year-to-year over the last decade. High levels of unemployment among recent graduates—an estimated one-third of the country’s 5.6 million 2008 graduates failed to find work in their first year out of school—are a major drag on the average wage figures. Meanwhile, labor shortages in manufacturing and construction have enabled migrant workers to demand higher and higher wages.

As the Foreign Policy article suggested, fooling too much with official statistics means you have lousy measures for planning purposes. And there is no indication that China is resorting to the usual Western approach for the need to produce unduly flattering reports: keeping two sets of books.

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29 comments

    1. Indigenous Centurion

      Does Governor Mike Huckabee have the solution for Wikileaks? Did he recommend, “If we want to keep our nation’s secrets ‘SECRET,’ store them where President Obama stores his college transcripts and birth certificate.”? Who knows?

      One thing for sure — if you have a leak, just call 37th President and tell him to send out the plumbers.

      Who you gonna call?

      WikiBusters
      !

  1. purple

    Apparently most Chinese – as with the West – want to be knowledge workers.

    Factory work is unpleasant and few wish it for their kids.

  2. Kevin Smith

    Cheating, and outright purchase of grades and degrees, is endemic in China. No wonder there is little demand and low pay for “college graduates”.

  3. Adam

    I’m not really sure the “not as rosy” is justified here. Note that that piece converts the graduate premium at nominal exchange rate, not PPP, and so is misleading in the context.

    Also it still shows that graduates are already earning 25% more than the general less skilled labouring population. Compare to England, where for 2007/08 median salary was £18.5k, compared to graduate starting salary of £23k, again a 25% increase.

    Yes university has become very popular in China, but China GDP per capita is still very low, so expecting graduate salaries to compare to those in first world countries is strange. Based on the minimal information given, the graduate premium in China looks perfectly reasonable.

  4. bill wilson

    To be a Chinese accountant you have to be especially good.

    You have to be able to keep at least three sets of books at once. One for the owner, one for the tax man, one for outside consumption…. Don’t trust any numbers coming out of China.

  5. jake chase

    Who was it said there are lies, damn lies and statistics?

    Does anyone think US statistics are anything but free hand? Unemployment? Corporate earnings? bank reserves?

    Eliminate mendacity and the whole globalization fantasy crumbles in an afternoon.

    What’s the difference between economists and clergymen? (Clergymen occasionally do some incidental good)

    1. Paul Tioxon

      I am not sure what you doubt, but know this, the % are irrelevant. Nobody has what we have. The UK has an air craft carrier, but no jets. The Russians have one nuclear sub, with no missiles, and it’s in dry dock. Kind of stupid, eh? We have 10 fully armed nuclear air craft carriers that can level any nation in hours. China does not have anything close to that one component of the US Navy. Oh, and check out the cost of 1 carrier, unmanned, without the F18s, which are extra costs. Don’t get me started on the nuclear MIRVs on the subs.

      The total ownership costs for our current carriers is $32BB each in 2004 USD. No, I don’t think China is quite ready to belly up to that bar. And that is only one element of our global military force. If anyone here spent enough time looking at the military expenses, their heads would explode.

      http://www.navy.mil/navydata/fact_display.asp?cid=4200&tid=200&ct=4

      1. Alex

        A carrier is basically a really big chunk of military industrial complex which in a real conflict will generally be situated far enough away from civilian areas that it can be wiped out with tactical nuclear weapons without minimal moral turpitude.

        They were useful in World War II, though.

    2. Jay

      66 Billion USD offcial , 4-5 times than that – unofficial, do you believe that they spend just 66 billion USD on defence?

  6. Steve

    This is nothing new to anyone who has ever worked with the Chinese economic data… In 2004, if you added up reported GDP from each of the provincial yearbooks, it summed to greater than 150% of nationally reported GDP. The interesting part, during the time I was working with the data, it was getting worse each year. The growing disparity started, as far as I can see, in the late 1990s due to decentralization. In short, the Chinese were doing it the Greek way before the Greeks (actually – the Greeks are pikers compared to the Chinese)… The game had two dimensions, in reporting on achievement of five-year plans goals – if you meet 100% of target you get certain bonuses, if you meet 120% of target you get that bonus plus a promotion… The flipside – especially for the poorer regions, the poorer you were the better, leading to the over-reporting of poverty.

    1. alex

      “if you added up reported GDP from each of the provincial yearbooks, it summed to greater than 150% of nationally reported GDP”

      So? It’s called synergy. You’re clearly stuck in the simplistic Western version of accounting.

  7. jim

    I’d say it is good news for developed countries that chinese manufacturing wages are increasing, at the same time western countries are coming down. Somehow this will all work itself out in the middle and hopefully not destroy the world in the process through world war or strip mining the worlds resources.

    The college education skills issue verus manufacturing wage issue will work itself out over time. There are many jobs in manufacturing that require skills that take time to aquire, just as some white collar jobs, so I am not suprised at the wage equality at the moment.

  8. Eric Titus

    Personally, I think the approach that Li takes shows a significant amount of intelligence and subtlety. GDP is a somewhat artificial number, arrived at through sampling and various assumptions. If I was the head of a state, I would much rather look at electricity expenditures, freight statistics, employment numbers to get an understanding of what sort of growth is happening. I remember seeing a study a year ago where researchers looked at light from satellites and found it tracked GDP growth fairly effectively. If I was a planner, investor, etc

    GDP is a very messy number to measure–and is more of a ‘propaganda’ statistic over the short term (except in the US at present, where every tenth of a percent seems to count). Even in the US, with its moderate growth, experience compiling statistics, and extensive corporate reporting, occassional adjustments have to be made to historical GDP numbers. And measuring the GDP of a state/region is even more difficult than measuring national GDP. It’s like how for a company, you don’t necessarily want to look at QonQ fluctuations in Equity/Assets so much as revenue and cash flow, or even same-store sales and organic growth numbers. The reason is partly because these details provide a better indicator of how the company is doing, and partly because they are less easily manipulated.

  9. jaymaster

    I’ve been working with the Chinese in the tech industry for over 12 years.

    The number one complaint of every engineer I talk with is “corruption, corruption, corruption!”

    The second one is basically “There is no way to find out what is really happening in China. It is all good news, all the time!”

    So the fact that these problems exist is known. But the big question is, how are they going to fix them? I’m not so sure they’ll find many good answers from the West…..

  10. Henry

    There is not a news. It is olds. Almost all chinese or any visitors (stay for half yrs or more) knew that.

    1. Mandarin

      I’ve lived and worked in China since 2006 in one of the large, East Coast cities. I can tell you flat out that Beijing, Shanghai, Shenzhen and Guangzhou are as developed as New York or Chicago in their amenities, public transport, infrastructure, and shops. No. Slightly ahead. You can believe me or not when I tell you that the people in these cities are better dressed and better educated than the norm in the USA. You can dismiss it as hogwash when I tell you that year after year I see the construction of new housing, factories, schools, and shops. But I suppose my eyes have deceived me. My eyes, and “dubious statistics”. The country has in reality just been hobbling along. Why, it can’t even afford one aircraft carrier! Or maybe it’s the other way around. China is “close to collapse” because of overheating and “too much infrastructure investment”. Well, one or the other must be true.

      1. alex

        None of which contradicts in any way the notion that China cooks the books on its economic stats. Leaving aside the obvious point that a few large cities are but a small part of a country the size of China or the US, can you tell the GDP of a country by walking around a few cities? Hey, good airport, nice subways, and I loved the restaurants, shops and museums – I’ll put the GDP at $8.818T (PPP).

      2. Alex #2

        Anecdotal stories are so useless when trying to assess a whole nation, much less a nation as large as China. What if I told you about my time in Xinjiang?

        Shanghai, Beijing, etc., are nice (if a bit musty), but are they bellwethers? London is the world’s foremost financial center, and one of its major cultural nodes, too, yet is situated in a country in the grip of austerity. Similar remarks could be made about Madrid, Dublin, or Tokyo.

        But by all means, go ahead and feel good about them being “ahead” of America.

  11. dearieme

    I’ve just watched most of a Beeb documentary on the wonder of the Science of Statistics. The presenter did not once ask whether “the data” might be inaccurate. If he did mention it, it was squezzed into the last 7%, the bit that I missed. Well, maybe 8%.

  12. jiang

    While the GDP on provincial level could be cooked, the State level GDP which is calculated independently of the provincial data is calculated based on available data (no intentional book-cooking). It’s said that State GDP is actually under-reported due to gray income which accounts for 30% of National GDP. You can find some interesting points from this article:
    http://www.chinatranslated.com/?p=1001

    It’s very comfortable to assume that Chinese government is making up numbers to show that China is making progress. A lot of people on this forum rather wish that China is all smoke and mirror and it will be next Japan in 5 years, so sleep tight and let China’s miracle disappear after you wake up. sweet dreams.

  13. Borad

    Yeah, I agree with Jiang here, I have to laugh at the whiners screaming about China’s supposedly inflated numbers. Do you really, honestly think that the US economy is so healthy? It’s acknowledged even officially that a dangerously high amount of US GDP is based on spiraling debt– mortgage (housing) debt, tuition and school debt, health care cost debt, none of which is remotely affordable to Americans on the ground. Which means that these debt numbers are inflating GDP artificially, and will be toppling down soon enough. Much of our GDP is based on pushing numbers around on paper, in the bankster sector for example. And the unemployment stats? Even the BLS is admitting to the farce. The 10% headline unemployment figure is hilariously underestimated– it suggests that engineering PhDs flipping burgers (thx to mass outsourcing) are “employed”. The U6 number, closer to 20%, is more accurate, and that’s not far off from the Great Depression– you audit the US numbers and their not pretty.

    China, if anything, has probably been underreporting its GDP stats. Both the Chinese people as well as the public/private sectors have comparatively little debt, i.e. they’ve been constructing their economy on the basis of genuine assets. They actually make things, goods and services, not just moving numbers around on paper.

    You can easily audit the GDP numbers by cross-checking them with other figures, such as trade data. And China has beocme the #1 trading partner with most of its neighbors, as well as many countries in Africa and the Western Hemisphere. So their GDP numbers check out– ours, less so. But it’s always nice to live in a pleasant fantasy world in which all the corruption, election-buying and incompetence in the US media and political sphere could just be ignored as if it had no consequence.

  14. okl

    my sister used to work in vietnam and there are 3 books;

    – the real accounting book
    – one for the taxman
    – one for the local govt

    its nothing new really; it’s part of a country in development. every organization practices this to some extent, its part of the game… just more developed in govt.

    i dare say the fed probably has three sets of economic data too;
    – the closest to reality
    – one for the politicians
    – one for the public

    as a sidenote, there’s a chinese saying that loosely translated, means “if the people at the top are corrupt, the people at the bottom will follow”.

    it’s pretty much the same thing in the US regarding Iraq; the analysts and people closest to the ground were writing pieces that first identified what things are and then recommended actions… however, its a game of telephone without people coming together, identify and laugh at the end- the analysis gets modified on the way up and then the people at the top got an overly rosy picture of what things are.

    needless to say, when the information is inaccurate or buried with euphemisms, there’s a very high chance of implementing the wrong policy… which is one of the overwhelming reasons why US is still stuck in Iraq and why so little has been done.

    now, i’m pretty sure this was the same thing with the Fed during the Greenspan era; but the difference being that in addition to the bad game of telephone, he wore rose-tinted glasses when interpreting statistics.

    if this happened then, what is to say that it is not happening now? other than them being completely disingenuous, this is probably the next best explanation.

    of course, it also fits well with the denial process;
    – deny there’s a problem
    – deny its a big problem
    – deny it had anything to do with us

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