Chinese Government to Crack Down on Fake Statistical Data?

More reasons to distrust statistical economic and financial figures from the Chinese government.

From Bloomberg:

China’s statistics-bureau chief said the agency has “zero tolerance” for falsified data after it publicized cases of manipulated local numbers and the customs bureau cracked down on fraudulent export invoices.

Incidents exposed by the agency are isolated and won’t affect the broader quality of data, Ma Jiantang, head of the National Bureau of Statistics, said today in Beijing at an “open day” attended by officials, journalists and school students.

China’s government has struggled to win the trust of investors and economists for data ranging from gross domestic product to trade. Li Keqiang, who became premier this year, said in 2007 that GDP figures were “man-made” and “for reference only,” according to a WikiLeaks cable.

Ma said that his agency has gained better control over the numbers through a direct reporting system that limits local officials’ ability to manipulate the numbers.

When political careers of the local authorities depends on the boosting of growth statistics then the natural consequence—or reaction by local leaders to the incentives provided by the political system—would be to fuel localized bubbles or to manipulate statistics or a combination of both as previously discussed. 

This serves as the difference between China's top-down politics relative to the Philippine Pork Barrel based system--where the latter's political power are attained by buying votes directly or indirectly from the electorate and from other political constituencies using earmarks (Pork), while the former gets appointed to local posts by meeting national targets.

And political leaders resort to, as well as, contribute and participate in the China’s shadow banking system via the local government financing vehicles (LGFV) to finance local projects. Off balance sheets now play a big role in China’s credit system (Business Insider)

Stephen Green of Standard Charter estimates at least 10,800 operational LGFVs from which only 800-900 LGFVs have financial statements on publicly issued debt.

Nomura economics estimate total LGFV debt at the end of 2012 at RMB19.0trn (37% of GDP), which included RMB14.3trn of interest-bearing debt. From 2010-12, LGFV debt rose by 39%, which implies total government debt of RMB31.7trn accounts for  61% of GDP at end-2012. (FT Alphaville)

Yet if many local governments have been notorious in the manipulation of statistics in response to the political system’s incentives, then why should we trust the central-national government when the same incentives influence the national leaders? 

For instance, Chinese Premier Li Keqiang has a self-imposed quota for economic growth which is at 7.5 percent. Today Premier Li says this quota has been surpassed 

From another Bloomberg report: (bold mine)

Chinese Premier Li Keqiang said the nation’s economic growth exceeded 7.5 percent in the first nine months of the year, a sign the government will next week report success in arresting a two-quarter slowdown.

Gross domestic product “maintained a fairly high growth rate of over 7.5 percent” in the first three quarters, Li said today in a speech at the East Asia Summit in Brunei. He said earlier today at an Association of Southeast Asian Nations summit that the economy has “shown stronger momentum of steady growth” in recent months, with indicators that reflect market expectations, such as the Purchasing Managers’ Index (SHCOMP), improving.

China previously reported expansion of 7.6 percent in the first half and Li’s government introduced measures including faster railway spending and tax cuts to defend a 7.5 percent goal for the full year. The National Bureau of Statistics reports third-quarter growth on Oct. 18, with the median estimate of 33 analysts surveyed by Bloomberg News for a 7.8 percent pace, up from the second quarter’s 7.5 percent.

At the end of the day, China’s economic growth has been all about meeting political objectives as measured by statistics whether from the national or the local level. 

Thus government activities will focus on attaining statistical growth at the expense of real economic growth. 

And these will likely be achieved by serially blowing bubbles and or by statistical manipulation via hiding, censoring and deleting of data which doesn't conform with the administration's goals.