Thursday, 7 March 2013

The mystery of China’s “missing province”

There is a “missing province” in China that explodes the myth about China’s strong economic growth.

You see, China’s political leadership is nominally communist, but in every important respect is the same as Chinese political leadership since the time of Confucius: they have the “Mandate from Heaven” to live off the backs of others, just as long as they deliver the national goals, be they national pride, military success, and/or economic growth and prosperity.

Succeed in delivering the goals, with or without bloodshed, and the leadership has a job for generations—the makings of a dynasty. Fail, and the people will be at your throats faster than you can say “peasant uprising.” 

For the last two decades, the national goal has been delivering economic growth and prosperity—blessedly, for the rest of us, but as times get tougher and the populace gets restive, different goals might emerge which will be less of a blessing.

And times are getting tougher—not that you’d know it from Chinese GDP figures, which regularly show growth figures rocketing at over 7% every year, even while manufacturing surpluses pile up and ghost cities abound. But, as Li Keqiang, then-party secretary of Liaoning and now soon-to-be premier, said in 2007: GDP statistics were “for reference only” and “man-made.”  Completely man-made, especially when its imperative to maintain the illusion of continuing prosperity :

Early this year, China found a missing province, one doing very well for itself.  The total GDP for 2012, according to the National Bureau of Statistics, was 51.9 trillion yuan.  The total GDP figures of China’s 31 provinces for 2012 added up to 57.6 trillion yuan, giving the phantom 32nd province an annual GDP of 5.7 trillion yuan.  For many economists, this was just a shining example of what they have believed for years: that China’s GDP numbers are questionable at best, and often exaggerate China’s growth, largely for political reasons.

Note that the soon-to-be Chinese Premier did not say this publicly, “rather, his statements (reflecting what many officials surely believe) came to light in 2010 in a U.S. government cable released by Wikileaks.”

There are a number of reasons for doubts about the accuracy of China’s GDP, as Eve Cary notes at’ The Diplomat’:

  • .To begin, there are structural political disincentives to reporting accurate GDP figures at the local level.  Local officials are promoted almost entirely on the basis of their locality’s growth rates, giving them a huge incentive to report increasing GDP figures, no matter if they are or not.
  • At the central level [where the Mandate of Heaven bears most ominously], it is politically imperative that GDP continues to rise, primarily because the central government has erected a system on the promise of economic success, and fears instability should growth decline and unemployment rise.
  • There are also questions about the mechanics of compiling and calculating the GDP figures, including how much inflation is accounted for.
  • Economists also doubt China’s GDP numbers because they seem to be compiled unnaturally fast: the NBS takes 2 weeks to collect its data, compared to 6 weeks for the much, much smaller Hong Kong, and 8 weeks for the United States.  This year, 2012 GDP figures were published on January 18th.
  • Finally, economists are concerned about the sampling methods of the NBS … officials still “rely heavily on an old-fashioned input-output model of industrial value-added derived from the era of Soviet-style central planning” that is able to measure government investment, but not other sectors, such as household spending.

Take Chinese figures with a pinch of salt.  They’re not as inaccurate as Soviet-style figures. But they’re not far off it.

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