GDP Reports Raise Doubts

Reports of double-digit growth in China's provinces have renewed concerns about Beijing's ability to manage the economy or measure it accurately, experts say.

After the National Bureau of Statistics (NBS) reported first-half GDP growth of 9.6 percent for the entire country on July 13, nearly all of China's provinces claimed significantly higher results.

Twenty-eight of the 31 provinces, municipalities and autonomous regions recorded double-digit growth, a National Energy Administration (NEA) official was quoted as saying. Twelve provinces cited increases of over 13 percent, according to the official English-language China Daily.

China's southwest Sichuan province led the list with GDP growth of 14.5 percent, but provinces including Shanxi, Jiangxi, Yunnan, and Fujian all reported jumps of 13 percent or more. Coastal Guangdong province claimed relatively mild growth of 10.1 percent, still far above the national figure.

Derek Scissors, research fellow in Asia studies at the Heritage Foundation in Washington, said it is impossible for both the provincial and national figures to be accurate.

"They certainly can't both be right," Scissors said.

Perennial problem

Correlating provincial and national economic figures has become a perennial problem.

In 2009, similar problems emerged after the Beijing Times found that GDP reports from the provinces exceeded the national total by 1.4 trillion yuan (U.S. $217 billion). In 2004, the difference was over 2.6 trillion yuan (U.S. $404 billion), prompting allegations of fabrication and fraud.

"It's been known for a long time that at the local level statistical reports tend to overstate the output growth rates," said Pieter Bottelier, a former World Bank official, now a nonresident scholar at the Carnegie Endowment for International Peace.

"It's a long-standing problem and Beijing has been struggling to get it under control," he said.

Disparities have also been seen in foreign direct investment data, with provincial results adding up to more than national totals, said Scissors.

"There are a lot of problems in addition to the obvious one of how you can average a bunch of things that are above 10 percent and get a number below 10 percent," he said.

The discrepancies make it hard to tell whether the government's policies are proving effective in cooling down the overheated economy from last year's 10.3 growth as the country struggles against rising inflation.

Questions of accuracy

Opinions are mixed on the comparative credibility of the national and provincial data.

"We don't have a good way of knowing which is closer to being true, but we do know there are internal inconsistencies in both," said Scissors. "So, both of them are inaccurate. Which is more inaccurate is a difficult decision."

Bottelier puts more trust in the national NBS figures, although he adds that they may have understated growth in the past.

"I don't think serious China watchers question the broad trend of the national figures. There is quite a bit of problems at the local level," he said.

Aside from accuracy, the differing reports raise doubts about whether provincial officials are heeding the central government's directives to slow investment in wasteful construction projects and property development.

Beijing has repeatedly warned the provinces against setting growth targets too high. But analysts agree that officials are still operating under old assumptions that they will be promoted for high GDP growth.

"The underlying problem is the incentive framework within the party structure," said Bottelier, adding that the 12th Five-Year Plan starting in 2011 has sought to change the reward system.

But Scissors said provincial officials are still unwilling to risk reporting lower figures, putting themselves at a disadvantage with those who do not.

"Politically, it's safer to stick with a lie that involves everyone, and that's just continuing to do what you've previously done," he said.

Reporting lower growth might also require revisions to earlier figures, calling the performance of previous officials into question. It may be a hard system to change.

"A directive from the central government just isn't enough," Scissors said. "You have to have a way to recalculate your economic results in a more accurate fashion."

Rate in excess

But even without the discrepancies, the national GDP rate reported for the first half was still far higher than Premier Wen Jiabao's slower-growth goal of 8 percent for this year. Under the five-year plan, the target for average annual growth is 7 percent through 2015.

"Even the gross numbers that have been reported at the national level for the first half of this year are way in excess of the official growth target for the country as a whole," said Bottelier.

The excess raises questions about how well the central government is implementing its own policies. Some figures suggest that investment-oriented growth strategies have remained unchanged, despite the official guidance.

According to the NBS, the nation's fixed asset investment climbed 25.6 percent in the first half from the year-earlier period, while property sector investment jumped 32.9 percent.

In 2010, the NBS reported that first-half fixed asset investment rose 25 percent, making it appear that the growth rate has increased this year instead of slowing down.