China in Transition
Is China's Growth an Illusion? - Credibility of China's GDP statistics -
Chi Hung KWAN
Consulting Fellow, RIETI
A number of questions have been raised both in China and abroad lately over the credibility of China's economic growth. As summarized in a recent paper by Thomas G. Rawski, a professor at University of Pittsburgh, those questions stem from the following observations:
- Despite its high economic growth, China's energy consumption has been decreasing.
- China's overall growth rates are not consistent with corresponding sector-by-sector growth rates. For instance, figures for overall industrial production are going up substantially while output figures are down in most of the major industrial products. Also, despite the stagnation in the agricultural sector, China's gross domestic product has been rising considerably.
- China has been enjoying stable economic growth despite widely fluctuating exports.
Based on the above points, Professor Rawski criticizes China's statistics for lacking credibility and insists that actual growth rates are far below the officially announced figures, which are manipulated to fit the government's targets.
The Chinese government's counterarguments are as follows:
Regarding (1), the government says that China has been able to achieve economic growth while saving energy because technology level improved in the process of economic development and because China's industrial structure is shifting its weight to the service industry.
For (2), the government says that those criticizing China are mistaking the facts, failing to recognize the ongoing drastic changes in the Chinese industrial structure in which old industries are being fast replaced by new ones.
Concerning (3), the government says it is net exports - exports minus imports - that affects GDP figures, noting that net exports account for only a modest portion of GDP. Reflecting China's trade structure centering on processing trade, a big rise in exports is usually accompanied by a proportionately big rise in imports, thus, bringing a minimal impact on GDP growth.
Not all the questions are wiped out, however, as the Chinese government simply provides possible scenarios to explain the inconsistencies among different statistics. It is undeniable that violation of the Statistics Law, such as the padding of certain figures, is rampant in various stages of compiling data, although it is unlikely such acts are done systematically. Besides, it is no surprise that the Chinese government's official figures are less accurate than those of industrialized countries as China cannot afford sophisticated data compiling systems due to budgetary constraints. Indeed, even among Chinese economists who insist on the credibility of China's GDP data, some acknowledge the need for improving the accuracy of statistics, pointing to the possibility that China's energy consumption has been substantially understated.
The low credibility of China's GDP data, however, does not mean that China's growth in the recent years is an illusion. We should not ignore the other aspect of China's official statistics: that economic growth in certain areas might be underestimated. Official statistics have full coverage of the state-owned sector that has been stagnant for years, but fail to reflect the favorable performance of the non-state-owned sector. The underground economy, which is said to be booming, is not even subject to the government's survey. Actually, since the launch of the reform policy in the late 1970s, most Chinese economic figures have been consistently pointing to the improvement of people's life and the expansion of production. Negative figures, as picked up by Professor Rawski, are rather exceptional. Ironically, the very fact that the credibility of Chinese statistics commands such strong interest overseas shows China's rising international status.
- Related articles
- Research paper by Prof. Rawski: "What's Happening to China's GDP Statistics?"
May 24, 2002
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