(Yicai Global) Jan. 15 -- As China’s provinces are about to announce local gross domestic product (GDP) figures soon, the governments of Tianjin and Inner Mongolia exposed inaccuracies in gross domestic product (GDP) data, turning the spotlight on ‘GDP growth deflation,’ a phenomenon that has emerged in China in recent years.
Tianjin has trimmed the GDP of Binhai New Area in 2016 by about a third from about CNY1 trillion, as specified in official data released early last year, to CNY665.4 billion after adjustments to statistical criteria, local media reported on Jan. 11.
Inner Mongolia’s 2016 fiscal and economic data were substantially inflated, and the actual annual industrial added value was CNY290 billion (40 percent) lower than the previously announced figure, the northern province acknowledged on Jan. 3. The inflated amount is equivalent to the 2016 GDP of the provincial capital Hohhot.
The phenomenon sparked a public outcry after the Liaoning government adjusted the 2016 GDP figure by 23.3 percent, down to CNY2,203.788 billion, in early 2017. The adjusted result is CNY670.55 billion lower than the 2015 figure. Liaoning’s was not an isolated case, media reports suggested, as local governments are tempted to manipulate and even inflate GDP statistics due to national overemphasis on GDP growth.
For many years, cumulative local GDP growth figure of provinces have climbed above national average as a result of falsification of economic data. In 2015, the overall GDP announced by the national bureau of statistics was CNY67.7 trillion, which was about CNY4.8 trillion lower than cumulative sum of GDP (CNY72.5 trillion) reported by local governments. The difference is greater than the GDP of Zhejiang province. The practice is attributable to double counting, as well as exaggerating figures.
This phenomenon is closely connected with local governments’ obsession with GDP growth as the most important criterion in government performance assessment. The central government now is downplaying the importance of gross domestic product as an indicator of economic development. As pointed out in the Central Economic Work Conference last year, the Chinese economy has entered a new era where the focus of economic development is shifted away from growth rate toward growth quality, meaning that GDP is no longer regarded as the sole criterion for assessing local governments’ performance.
Artificially inflating GDP data can be lethally dangerous. If GDP statistics cannot reflect the true situation of local economic development, economic and public policies formulated based on such data will lead to an adverse impact on local economies. Even worse, they may cause disruptions to national investment and financing plans and the fiscal balance system.
Elimination of GDP data inflation by local governments requires the establishment of a uniform national economic accounting system. The main reason for data adjustment in Tianjin is that earnings of many enterprises registered outside the city were repeatedly calculated, a major drawback of the current data system treating city of registration as the main criterion. The NBS plans to roll out the unified local GDP accounting reform next year, whereby local economic data will be calculated jointly by statistics departments of the provinces, autonomous regions and municipalities under the NBS’s leadership to ensure consistency between local and national GDP figures.
Furthermore, artificially inflating local economic data is a crime, so the offenders must be seriously investigated for legal liability. Forging and tampering with statistical data are against the law, and offenses constituting a crime should be referred to the judiciary for criminal investigation. Similarly, the NBS has tightened performance appraisal for senior government officials, calling for a veto system to be imposed on those involved in data falsification or fraud. In other words, the offenders must be held accountable. Otherwise, GDP inflation, especially data falsification, cannot be eliminated given the tendency to exaggerate GDP as the main economic indicator.
China’s economy is in the middle of a transition toward a quality-driven growth model. Successful transformation of the economy requires objective and accurate data in local and national economic policymaking, instead of focusing exclusively on GDP growth.