China, the GDP Machine

August 24, 2007 - By: Lee Anderson, J.D., M.L.S., Staff Analyst

China’s GDP - How Reliable Is the Data?

Did you ever wonder where the GDP figures come from?
Are they reliable?
Are they manipulated?
How can China’s GDP expand so consistently?
And why?

Under the Radar Looks at China, The GDP Machine

China is evaluated in terms of its Gross Domestic Product – which goes only one direction: UP.

Who calculates the GDP? Is it reliable? This information has traditionally been published by local provinces where the bureaucratic government has a vested interest in delivering positive and improving numbers. This is changing. Statistical information is now collected by the National Bureau of Statistics which has established branch offices in the individual provinces to collect data.

We are constantly bombarded with information from National Centers and Bureaus:

     The State Information Center said the first week in August that China's economy may expand slightly slower in the second half of 2007 than the first half.

     The National Bureau of Statistics announced in July that China's GDP expanded 11.9 percent in the second quarter this year, lifting first-half growth to 11.5 percent.

     The official forecast is that China's trade surplus will soar 55 percent year-on-year to 275 billion U.S. dollars this year despite rising yuan and scrap of or cut in export rebates. Fixed asset investment will rise 26.1 percent this year, 1.6 percentage points higher than a year ago. The industrial output is likely to grow 17.6 percent in 2007, one percentage point higher than in 2006.

     Retail sales for the whole year will likely grow by 15. 8 percent, 2.1 percentage points higher than last year.

Under the former national reporting scheme the central government announced the country's overall economic growth rate and then the provinces announced their own growth rates. But the total from the provinces was often greater than the overall rate because many local authorities deliberately inflated the figures.

This will change. The National Bureau of Statistics intends to improve the credibility of government statistics and prevent local governments from "rigging" economic surveys by centralizing the data gathering to improve the credibility of statistics.

In 2004, the total of GDP figures reported by all the provinces was 3.9 per cent higher than the central government's calculation, Xinhua reported. Only Guizhou province reported a growth rate lower than the national average.

The National Bureau of Statistics has set up branch offices in all provinces and autonomous regions by the end of last year. These are independent from local authorities and report directly to the bureau.

The economic survey teams collects information related to environmental protection, education, social security and public health and no longer relies on the reports from the provinces themselves.

While the figures can be manipulated it appears they will become more consistent and reliable as the National Bureau of Statistics begins the mange all incoming data.

China’s GDP is an important factor in making an investment decision. There will always be questions about the validity of the figures but no one can dispute China’s meteoric growth.