There are three kinds of lies: lies, damned lies, and statistics. Mark Twain forgot the fourth: Chinese data. Since the beginning, Chinese statistics have been flawed due to a combination of secrecy, politics, and incompetence. China has improved in many ways, but honesty is not one of them.
China’s biggest lie was the Great Leap Forward. Mao’s utopian policies fed by fictitious crop yields killed between 18 and 50 million people from 1958-61. There is no certainty given no records were kept. Today’s CCP is largely quiet, blaming the “three bad years” on inclement weather. Instead, its official verdict on Mao’s legacy is “70% good, 30% bad.” The 1989 Tiananmen Massacre, on the other hand, was 100% malarkey. The government’s claim that, “No one died in Tiananmen Square,” has some Orwellian truth, as most shooting occurred in surrounding neighborhoods. While the CCP censors the incident, outside estimates are as high as 5,000 dead.
Today, the falsehoods and half-truths are ubiquitous.
Economic numbers released by the National Statistics Bureau (NBS) are dubious. Christopher Balding, of Peking University, claims China’s GDP numbers are often “willfully fraudulent” and “significant and systemic irregularities” overstate GDP by up to $1 trillion. Capital Economics estimates growth 1-2 percent lower than official numbers when adequately adjusting for inflation. In NBS’ defense, they calculate GDP independently, as provincial data overestimates output by $331 billion. They also struggle to measure the “grey economy” of informal street merchants, giving a downward bias.
Even Chinese Premier, Li Keqiang, recommends using only numbers on electricity consumption, bank lending, and freight shipping. All other numbers are “man-made” fantasies. Economists responding to Li’s advice started following the “Keqiang Index” – an aggregation of electricity, lending, and freight – to spot China’s true health. However, comically, the electricity numbers have been put into question by Kieth Bradsher of the New York Times. When China was reporting increased electricity demand, coal factories were simultaneously reporting record levels of unused coal piles. Finding solid ground to balance the real weight of China seems almost impossible. With it being the largest trading partner of 124 countries, minute discrepancies in China’s economic indicators can affect the global economy as so many calculations are tied to Beijing’s data.
To profit from Chinese business, multinational firms are pressured to cook the books. The Big Four accounting firms all came under fire for “alleged serious breaches of ethical and professional integrity” in their lax auditing of state enterprises. Deloitte’s Shanghai office declined SEC requests for transparent numbers for fear of “violating Chinese laws on state secrets.” Enron-style accounting combined with excessive leverage is the bedfellow of economic crisis, as the 2008 financial crisis testifies.
Equality is vital for a nominally communist country. Official inequality, measured by the GINI coefficient, was .47 in 2012. A perfectly “harmonious society” would be zero while 1.0 is absolute inequality. Being slightly above the US at .45, releasing the GINI for the first time since 2001 acknowledges the Communist Party’s concerns. However, Chengdu’s Southwestern University of Finance and Economics finds real inequality at .61 when accounting for urban subsidies (housing, healthcare, etc). If correct, this is the world’s fifth worst rate, higher than Haiti, Angola and Honduras. Perhaps in response, protests have increased 2,000% since 1993 to roughly 500 per day. Again, the exact number of “mass incidents” is unknown, having last been released in 2005. One is reminded of the sudden transformation to international affairs when analysts, unable to assess social stability inside the USSR, failed to foresee collapse of the Berlin Wall.
Even the benign subject of education receives statistical air brushing. The Programme for International Student Assessment (PISA) recently ranked Shanghai students first globally on math, reading and science. Commendable, but Shanghai only represents 2% of China’s population. International news agencies like Bloomberg and Time magazine hid this fact with titles like “U.S. Teens Lag as China Soars.” China’s government encouraged this by denying PISA the scores of the 12 other provinces tested. Alarmed pundits react to PISA with calls for drastic changes to education. How smart would Chinese policy be if based on reactions to test scores from Manhattan or Palo Alto?
There are many other fictions; these are just the most salient. While most are deliberate, circumstances are responsible for other inaccuracies. China is constantly changing and what is true today might not be tomorrow. To optimize investment and public policy – in China and globally – it is imperative we (the US, UN, investors and China) correctly identify these changes. This can’t be done in the world’s second largest economy if nonsense proliferates as it did with Mao and Tiananmen. A void of truth is filled with fear, speculation, and corruption. There is little impact when small, third-world country numbers are faked, but a crisis of confidence in a superpower would reverberate everywhere.