Stricter GDP data standards a necessary pain for China

By Wang Jun Source:Global Times Published: 2018/1/25 22:48:40

Stricter GDP data standards a necessary pain

Illustration: Peter C. Espina/GT

Tianjin recently published the statistics for the city's economy in 2017, showing its growth rate had dropped to the lowest level in the last decade. The city's GDP grew by just 3.6 percent in 2017, down 5.4 percent percentage points compared with 2016. The general public budget income also declined, falling by 10.4 percent. The Statistics Bureau of Tianjin said that there was a change in statistical methodology, which is a way of indirectly admitting that previous GDP data had been distorted.

Overstated GDP has been a long-term problem, caused largely by the government performance evaluation system, which judges local officials on the basis of GDP data. Some officials inflated the figures in order to gain promotions. The sudden GDP drop is the result of a restoration of genuine economic data. Tianjin claimed to have maintained a growth rate of more than 10 percent from 2008 to 2014. Even under the economic downward pressure of recent years, it still apparently maintained a growth speed of around 9 percent. The change in statistical methodology shows the local government has had the courage to admit the shortcomings in its previous work. It also lays the foundations for future high-quality development.

The central government has been promoting a new development concept based on a greener economy and innovation, emphasizing high-quality, comprehensive and sustainable growth. This has also meant a shift away from the previous emphasis on GDP growth. The performance evaluation system for local government officials is changing as well. China's National Bureau of Statistics has been formulating a green GDP evaluation system. Although it has not yet been widely adopted, it is a signal for the direction of the future.

The central government is also carrying out a reform of statistical methodology, with unified calculation of GDP around the country. This means GDP manipulation will no longer be possible for local governments. Last year, The National Audit Office (NAO) said that 10 city or county governments had been found to have inflated their fiscal revenue. The sum of GDP of all provinces and cities also exceeded the national GDP level, which exposed the inflation of local data. Some local governments have chosen to confess instead of being found out by the central government under the new statistical system.

Local governments are now facing pressure. On the one hand, some of their data can no longer be justified. On the other hand, they have to provide more tax revenue to the central government since their fiscal revenue has been inflated. This is obviously a problem for the local financial situation.

Therefore, Tianjin is not the first, and will not be the last place to admit to inflation of GDP data. The economic transformation is a good opportunity for them to recognize the problem, eliminate the inflated economic data and embrace the new growth model.

Restoration of the real GDP data might deal a blow to confidence in the Chinese economy, but it is a growing pain that must be suffered. The painful appearance of the GDP manipulation problem with some local governments will provide a warning and set an example for the rest. They are now under more pressure to conduct self-examination and self-correction of their economic data.

The GDP inflation issue might be used by some as evidence for the concerns that have been expressed about the Chinese economy. But China should not turn its back on the truth because of the doubts held by some countries. A correct judgment of the real economic situation is now needed more than ever. Recognizing the distortion of economic data will spur China to face the problem and accelerate its economic transformation.

Even without the data inflation, China's economic growth will maintain a decent speed. Local governments that manipulate GDP are in the minority. Moreover, some provinces on the east coast may have deflated their fiscal revenue in order to reduce the amount of tax they have to pay to the central government. China's impressive economic growth is a matter of fact, and that won't change. But moving on from the GDP-based evaluation system and transforming the growth model are challenges that China must tackle.

The author is chief economist with Zhongyuan Bank, and a research fellow at the National Institute of International Strategy under the Chinese Academy of Social Sciences.

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