The Truth About China's Economic Statistics

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A final rejoinder to Megan McArdle's post on Chinese statistics. I think the essence of the argument was that "Chinese stats are terrible. And you need solid stats to manage what is basically still a centrally planned economy, or at least one in which the state unflinchingly intervenes. Therefore, the Chinese must be running their economy by the seat of their pants, probably making up stats left and right." 

So, a few points... 

First of all, it is not a huge secret that Chinese statistics are less-than-ideal. In fact, imperfect data is a defining characteristic of a developing country/emerging market. Beyond that, Chinese economic figures are sound enough, especially compared to other developing countries. And one look at the Chinese National Bureau of Statistics will find that it has sets upon sets of data, though not all of them are easily accessible, and some are outright off limits (an issue to which I return below). No longer do economists fiercely debate Chinese GDP or CPI or PMI data and so on, implying that most macroeconomic figures are generally credible. And most economists also know that Chinese statisticians tend to adjust annual figures for the previous year to make them more accurate. One notable instance was when China in early 2009 revised upward its 2007 GDP by 1.1 percentage points to 13 percent. 

Second, there seems to be this persistent notion that the Chinese intentionally crave terrible numbers so that they can't cool the property sector or tame inflation. It's as if Premier Wen Jiabao, who is running a $5 trillion economy, would rather not be informed by numbers because well, they just aren't perfect. And yes, 30 years of nearly double-digit growth just happened by "technocratic wizardry" with nary a concern for decent economic figures. That's just clearly not true. Indeed, policy-making is very much informed by hard figures. Are there distortions? Absolutely, like in most developing countries. Does the government know there are distortions and unexplainable discrepancies? Yes. If Chinese figures are so horrendous as to be rendered unusable, then most economists working on China ought to be looking for new gigs. The NBS has actually faced public pressure and from within the government to do its job better and generate better data. For one, it hopes to publish q-o-q GDP data (currently reported on y-o-y basis), which would arm economic policymakers with more timely figures to make informed real-time decisions. There's also the intention to reconfigure the CPI basket so that property prices are weighted more heavily to reflect a more accurate inflation picture. Inadequacies in the Chinese data system will surely continue to surface, but legitimate improvements should be recognized.  

Third, McArdle has this line "Once you limit the autonomy of local nodes to make decisions, you need some sort of massive data set to overcome information loss as decisions move up the hierarchy."  This seems to me a misunderstanding of how the Chinese system works. Fiscal decentralization has been an enduring feature of the Chinese system, which actually confers, rather than limit, localities autonomy in economic policies. Incidentally, this is also a symptom of why solid data can be difficult to obtain in China--because local authorities have an incentive to over- or under-report, depending on the case and data in question, that can prove to be a headache for Beijing bureaucrats. Generally, I think the central bureaucrats assume the local guys have an "over-reporting bias" and will account for that when they calculate the final numbers. 

Fourth, to return to an earlier point: The more pressing problem in my view is not so much imperfect data, but data transparency, openness, and accessibility. The NBS has been doing a better job at posting data on its website, but it still leaves much to be desired. While many US agencies like Commerce and Treasury publish their own comprehensive and freely available data, the Chinese equivalents are still far behind. Sure, you can find sporadic trade data through the Ministry of Commerce, but it is nowhere near comprehensive. 

Finally, while Chinese economic data have earned a basic level of credibility, the country's energy data remain in tatters--an area that I believe could increasingly become a new front of contention (see recent brouhaha over IEA figures on Chinese energy consumption). This is especially so given Chinese commitments on energy and carbon reductions, which will need to be backed by credible numbers. Part of the deficiency is a result of institutional shortcomings--the Chinese don't have an equivalent of the US EIA, and Beijing's energy policy apparatus is notoriously short-staffed and fragmented. Transparency and energy data are two areas where there's a long slog ahead.
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Damien Ma is a fellow at the Paulson Institute, where he focuses on investment and policy programs, and on the Institute's research and think-tank activities. Previously, he was a lead China analyst at Eurasia Group, a political risk research and advisory firm.

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