
China's GDP Growth Pace Was Inflated for Nine Years, Study Finds - jonbaer
https://www.bloomberg.com/news/articles/2019-03-08/china-s-gdp-growth-pace-was-inflated-for-nine-years-study-finds
======
seanmcdirmid
Not surprising at all, the government is uncannily accurate in their
prediction (growth will be 6.9% this year, at the end of the year: hey look,
we did it!). Kind of like how almost every province usually has a 4.0%
unemployment rate.

That isn't to say China's GDP hasn't been growing, just that the numbers are
always being fudged one way or the other. They used to even fudge the numbers
down (growth higher than reported) to prevent the appearance of overheating.

It is ironic that Li Keqiang is premiere (#2) but Xi Jinping has decided not
to use his index
([https://en.wikipedia.org/wiki/Li_Keqiang_index](https://en.wikipedia.org/wiki/Li_Keqiang_index))
that gets around fudging with more accurate statistics.

~~~
dis-sys
> It is ironic that Li Keqiang is premiere (#2) but Xi Jinping has decided not
> to use his index
> ([https://en.wikipedia.org/wiki/Li_Keqiang_index](https://en.wikipedia.org/wiki/Li_Keqiang_index))
> that gets around fudging with more accurate statistics.

Li Keqiang Index has three components, electricity consumption, railway cargo
volume and bank loans. They all had pretty good growth, e.g.

[https://www.caixinglobal.com/2018-12-06/china-railway-
corp-s...](https://www.caixinglobal.com/2018-12-06/china-railway-corp-signals-
sustained-growth-ahead-101356386.html)

[https://www.caixinglobal.com/2019-01-30/chart-of-the-day-
chi...](https://www.caixinglobal.com/2019-01-30/chart-of-the-day-chinese-
electricity-consumption-growth-hits-6-year-high-101376236.html)

People need to be realistic, China's current GDP per capita is lower than
world's average, it is an extremely poor country totally under developed. With
the largest domestic market and hard working population, how hard will it be
to grow at 6-7% to catch up with some in the middle of nowhere countries with
$20k USD GDP per capita?

~~~
ido
China is huge and heterogeneous - the coastal cities are well developed and
there are 100s of millions of people living in Shanghai, Beijing, Hong-Kong,
Shenzhen etc who are well on their way towards western level of development.

For example the Yangtze River Delta has more than 100m people (more than any
European country) and GPD(PPP) per capita similar to Italy:
[https://en.wikipedia.org/wiki/Yangtze_River_Delta](https://en.wikipedia.org/wiki/Yangtze_River_Delta)

~~~
dis-sys
> For example the Yangtze River Delta has more than 100m people (more than any
> European country) and GPD(PPP) per capita similar to Italy

I won't make such comment by completely ignoring the wellbeings of other
hundreds million people who live just a couple hours drive from the so called
Yangtze River Delta. To name a few examples -

Anhui province is so poor to the extent that it is offensive to ask people
questions like "so you came from Anhui?" in Shanghai.

[http://www.sohu.com/a/212534231_578851](http://www.sohu.com/a/212534231_578851)

Henan province has 100 million population on its own, it is nothing really
different from the least developed part of Africa.

[http://www.sohu.com/a/196108368_100023515](http://www.sohu.com/a/196108368_100023515)

Those are real people & real lives. How the other 100 million slightly better
off Chinese living in Shanghai or Beijing doesn't change the absolute poverty
suffered by those hundreds millions not living in tier-1 or tier-2 Chinese
cities. Anything painting China as a rich/developed/modern/high tech country
is nothing else but cheap propaganda.

Let's make it crystal clear - China's GDP per capita is below the world
average. The OP article further pointed out that such reported GDP figures
might be inflated as well. When the GDP per capita is below world average, how
it is not a poor country significantly under developed?? The only real risk
China can possibly pose to the world/west is the fact that a collapsed China
can trouble the whole world/west.

When China is damn poor, it is thus much easier to develop and grow 6-7% each
year. It is like cutting 1s is easy when it takes you 20-25s to run 100
meters, but it is close to impossible to do the same when you are already
finishing 100 meters in 11s. China's GDP is growing 6-7% not because it is
smart/modern/strong, it is the complete opposite, it is because China's GDP
per capita is well below world's average!

~~~
ido
And the Ukraine is just 500km from Vienna. I don't dispute China is a
developing country, I just think a lot of westerners don't realize how huge
and - in parts - how developed it is.

People hear "China is a developing country" and think it's comparable to
countries like Bangladesh or Cambodia. But the tier-1 cities and their
peripheries are not some tiny enclaves of wealth like Singapore, they are huge
- bigger than major European countries.

The fact that poor/undeveloped areas are relatively nearby does not make them
less developed than the fact that Moldova and Kosovo are in the EU's backyard
make Germany undeveloped.

~~~
dis-sys
> Ukraine is just 500km from Vienna

those are two vastly different independent countries.

> how developed it is

can we just cut all cheap talks and focus on undisputed facts and numbers? the
undisputed facts here is extremely simple -

1\. China's official GDP per capita is well below world's average.

2\. The research in the OP article shows such official figure is highly
inflated.

You can keep painting China as "developed" or "developed in some selected
areas", the above undisputed facts won't change. Hundreds of millions of
Chinese live well below the world average standard when it comes to their
economic lives. Selectively ignoring the real life situation of hundreds of
millions just to back what you believe is not that convincing.

~~~
ido
Can we have a more subtle and less one-dimensional discussion? I'm not
claiming you are wrong.

------
learc83
Can we do something about every article remotely ctitical of China being
flagged.

I'm assuming that's what happened since this article very quickly moved from
1st place to below other articles that are older and have far fewer comments
and upvotes.

Edit: currently #21 despite more upvotes and comments and being newer than the
top 3 articles.

~~~
headsupftw
It's actually the opposite. Every comment not critical of China gets downvoted
quickly. Proof: comments on this article and other articles critical of China,
remotely or overtly.

~~~
learc83
Downvoting is different from flagging. Articles can't be downvoted only
flagged.

If you look at the comments in the thread that have been flag killed, they are
mostly low quality comments on both sides of the issue.

And looking at downvoted comments, there doesn't seem to be much correlation
at all between upvotes and whether the comment is critical of China.

~~~
dis-sys
> they are mostly low quality comments on both sides of the issue.

Please have a look at the other reply I made in this thread, when someone
mentioned that Li Keqiang Index and argued that it is a better indicator of
China's real GDP growth, I listed recent figures to show that if Li Keqiang
Index is actually more reliable, there would be higher real GDP growth. My
cited numbers are from Caixin, which is considered as a pretty reliable
private source.

What happened to my reply? My "low quality" comment is downvoted within
seconds. I don't think China bashing comments are being treated the same way.

Rather than just blindly marking other people's replies as of "low quality",
maybe you can share some more details on why my downvoted reply above is of
low quality and how can I improve from that.

Oh, btw, with high confidence that this reply is going to be downvoted fast.

~~~
ksec
I upvoted your last comment, and upvoted this one. I disagree with they are a
"better" indicator to what other part of the world uses, but agree with the
the index being more reliable than the current one China is using. Agree with
the Caixin sources as well.

I generally don't downvote something unless they are, meaningless, offer no
value to discussions or spreading wrong information that could easily be
disproved.

------
ggm
The article states that the provinces have a material reason to inflate. The
provincial governments are far stronger than people routinely seem to
understand, we're obsessed by the strong statist arguments of 'scary China'
and don't think about their internal structure and where strength and weakness
lies.

I believe Chinese central planners don't like misleading numbers, it makes the
five year plan much harder to design. The Chinese technocrats wouldn't like
this situation any more than western investment does.

~~~
mc32
I would decouple the economic and political realities of “the mountains are
tall and the emperor far away” from national military might.

Vietnam, Russia, Tibet and other neighbors can attest that that one is not
like the other.

~~~
ggm
Possibly, yes. The article I responded to focused on the economy. Do you see
signs of Chinese territorial ambition, spratleys aside?

~~~
barry-cotter
China’s territorial claims in the South China Sea are ridiculously broad. The
nine dash line in particular is insane, extending into the EEZ of six other
countries. China claims that entire area, not as its EEZ but as _territorial
waters_.

[https://en.wikipedia.org/wiki/Territorial_disputes_in_the_So...](https://en.wikipedia.org/wiki/Territorial_disputes_in_the_South_China_Sea)

> The disputes involve both maritime boundaries and islands.[8] There are
> several disputes, each of which involves a different collection of
> countries:

> The nine-dash line area claimed by the Republic of China, later the People's
> Republic of China (PRC), which covers most of the South China Sea and
> overlaps the exclusive economic zone claims of Brunei, Indonesia, Malaysia,
> the Philippines, Taiwan, and Vietnam. Maritime boundary along the Vietnamese
> coast between the PRC, Taiwan, and Vietnam. Maritime boundary north of
> Borneo between the PRC, Malaysia, Brunei, Philippines, and Taiwan. Islands,
> reefs, banks and shoals in the South China Sea, including the Paracel
> Islands, the Pratas Islands, Macclesfield Bank, Scarborough Shoal and the
> Spratly Islands between the PRC, Taiwan, and Vietnam, and parts of the area
> also contested by Malaysia and the Philippines. Maritime boundary in the
> waters north of the Natuna Islands between the PRC, Indonesia and Taiwan[9]
> Maritime boundary off the coast of Palawan and Luzon between the PRC, the
> Philippines, and Taiwan. Maritime boundary, land territory, and the islands
> of Sabah, including Ambalat, between Indonesia, Malaysia, and the
> Philippines. Maritime boundary and islands in the Luzon Strait between the
> PRC, the Philippines, and Taiwan.

~~~
adventured
Taiwan should also obviously be added to the list of China's territorial
ambitions. They're openly aggressively intent on annexing Taiwan by any means
required, despite it being a separate, self-governed nation for the last half
century. They're the 21st largest economy in the world. It would be by far the
biggest conquering event in terms of a major nation being annexed since the
WW2 era.

~~~
CogitoCogito
I can’t understand the downvotes on this post. The PRC has never controlled
Taiwan and has made annexing it (with other words to hide intent) an explicit
goal. Of course Taiwan is a territorial ambition of the PRC.

------
jerkstate
It's especially notable that China has been caught inflating their GDP numbers
because their Paris Agreement carbon output was tied directly to carbon per
unit GDP, see [https://www.nrdc.org/sites/default/files/paris-climate-
confe...](https://www.nrdc.org/sites/default/files/paris-climate-conference-
China-IB.pdf)

------
rohan1024
Indian. I am not sure if our GDP numbers are correct either.

~~~
cscurmudgeon
If anything, for India it is the other way around due to the massive informal
economy and tax avoidance.

------
ddebernardy
Economists (e.g. Michael Pettis) were already calling China out for its long
history inflated numbers when the 2007-2009 crisis erupted. Perhaps this view
might go mainstream with the looming recession?

~~~
JumpCrisscross
> _Perhaps this view might go mainstream with the looming recession?_

Nobody, including Beijing, took China’s official statistics at face value.
What’s novel in this work is the larger-than-expected _magnitude_ of the
error.

~~~
ddebernardy
The article mentions China overstated its growth by an average of 1.7
percentage points per year since 2008.

Best I recollect from back when I was reading Pettis' blog on a regular basis,
that figure is actually _lower_ than what he was been suggesting China had
been overstating its growth by in the decade prior to 2008.

Pettis is about as specialized in China financial markets as you can get,
having basically studied and blogging about the stuff exclusively insofar as
I'm aware while living and teaching finance there. He has many criticisms of
how China is reporting numbers. One in particular is that local officials are
expected to meet certain GDP targets. When the numbers don't look like they'll
be in, they'll take on debt and build a bridge to nowhere to make their
numbers.

The point being, from where I'm standing from there doesn't seem to be
anything new in the magnitude of the error. (It's great if the article made
you privy about how overstated the economy was.)

------
myrandomcomment
Is anyone surprised? The government in China has to manage for image
internally to their population. I am not saying this is bad, it is just the
trap the current government is in. They have of move to a non export driven
economy. The cost of building in kit in China has just climbed. Low end
manufacturing has been moving out for years. China still has a wealth gap
issue they are trying to manage. This means they have to move to a domestic
spending driven economy as fast as they can.

------
m0zg
Reminds me very much of the Soviet Union. CPSU could also produce whatever
paper numbers they wanted. Whether any of them matched reality was another
story entirely. Everyone knows how that ended.

That said, I no longer trust the mass media to report something like this
accurately either. For all we know someone might be throwing in a narrative to
help (or hurt) the ongoing trade negotiations.

------
taobility
Western economists have desperate view with China's economy for two decades,
and their faces have been slapped for two decades.

------
diminish
1-2% overstatement of GDP, if that's big news, that will depreciate the
Chinese currency and boost the exports more.

------
bitxbitxbitcoin
The winds of exaggeration blow still. [1]

[1] [https://foreignpolicy.com/2009/03/10/beijings-gdp-
numerology...](https://foreignpolicy.com/2009/03/10/beijings-gdp-numerology/)

------
powerapple
And everything is fine.... maybe GDP is not important anyway.

------
Leary
How does the study capture the growth in the services sector?

------
cyphunk
Could someone explain why this is on HN? I ask because this comes up often on
other non-tech topics. Personally I'm happy these topics can be discussed
here.

------
wholien
Eh, it's really actually pretty hard to calculate GDPs. Many countries can't
get within 1% due to reasons, so 1.6% per year isn't _that_ big of a
difference. China also has interesting accounting systems that actually might
_under-count_ the GDP, for example the GDP calculations mostly ignore the GDP
of small firms.

> Companies with annual revenue below 360k RMB (roughly 53k USD) are exempt
> from VAT tax and all subsequent taxes. China has more than 65 million (2017
> estimate) such micro companies, often single person, or single family (two
> people). If you multiply the two numbers together, it is up to 3.4 trillion
> USD per year. Just assuming only 1/4 to 1/2 is achieved, that is a 0.85 to
> 1.70 trillion USD economy, roughly 7% to 14% of overall Chinese GDP will
> have to be estimated, and can be potentially massively under reporting.

source:
[https://www.reddit.com/r/Economics/comments/aycs6x/chinas_20...](https://www.reddit.com/r/Economics/comments/aycs6x/chinas_2016_gdp_might_be_overstated_by_16/ei2g6bf/)
\- I will probably look this up in the future but can't verify this comment
right now.

Here's a paper from the National Bureau of Economics Research that suggests
that Chinese GDP might be understated:
[https://www.nber.org/papers/w23323](https://www.nber.org/papers/w23323) \-
this paper analyzes Chinese GDP by looking at its nighttime light usage. In
this vein, I've heard that government actually tries to be conservative with
the numbers so as to avoid the overstatement claims, but I have 0 sources on
this.

For the Brookings paper linked in the post, one big issue with it is that it
didn't account for a tax-related change that happened in 2008-09. See this
reddit comment for details:
[https://www.reddit.com/r/Economics/comments/aycs6x/chinas_20...](https://www.reddit.com/r/Economics/comments/aycs6x/chinas_2016_gdp_might_be_overstated_by_16/ehzu2ww/)
\- this means that the overstatement is still there, but probably smaller. The
author of that reddit comment emailed the authors but hasn't heard back.

It does seem like everyone will take the "OMG CHINA FAKES EVERYTHING" at face
value as it confirms their biases. I don't want to speak on either side of it,
growing up in China we/my parents/friends all make fun of the GDP numbers and
call them chicken butt (鸡的屁 sounds like GDP). Maybe the core of the issue is
that no one really has transparency so it's really hard to tell for sure, so
no one, domestic or foreign, trusts the numbers given by the government. If
so, maybe the objective ways of doing analysis, like satellite footage on
night time lights, is the way to go (not to say the article I linked is thus
100% the truth). Anyone have other ideas on what indicators, like nighttime
lights, can be used here?

~~~
XuMiao
Very reasonable comments.

I don't know why some people are so emotional about China. Sounds like they
have lost something in their lifes.

An adult conversation is a fact driven conversation. That is the basic culture
for HN v.s. places like reddit.

GDP is a manipulable number that has lost its accurate meaning. Even the
ratings of the TVs have multi-aspects now.

------
wnevets
no not china, no way!

It has been no secret that any numbers from china needs to taken with a grain
salt.

------
known
I think every country does that

------
nodesocket
China "inflating" AKA lying about economic numbers is widely known and
accepted by US stock market folks and analysts.

------
mempko
I'm sure all countries have been cooking the books.

------
crb002
One easy way to measure GDP is count their new large truck sales. That number
is hard to game.

------
coliveira
All countries inflate GDP, because there is always a gap of uncertainty about
existing economic activity and governments like larger numbers. And since
Chinese growth is higher than in other parts of the world, it is normal that
the gap be larger, in the range of 1%.

~~~
steve19
I don't think this is true. Certainly in many countries GDP calculations are
transparent. The economists calculating them are bureaucrats who serve the
government, not whichever party is currently in power.

~~~
coliveira
Oh, right, the same kind of people who gave AAA status to mortgage based
derivatives. You must live in a different world, then.

------
resters
Consider that Fannie and Freddie were allowed not to provide detailed
financials to congress for several years in a row preceding the 2008 housing
collapse.

It's not a matter of "oh wow, a major government fudges numbers", it's "how
many major ways in which my government fudges numbers might I not be aware
of?"

~~~
contingencies
As an outside observer, another example would be the constant redefinition of
US unemployment (I hear it is now "people who haven't actively sought work for
3 months are no longer considered unemployed") which IIRC from an article has
dropped US unemployment figures. It sounds like reality may differ
substantially, and there is certainly a huge underground/cash economy.

~~~
kasey_junk
The US BLS has long kept many different measures of unemployment.

All of these numbers are watched to extreme degrees by market participants.
The idea that they are constantly redefined doesn’t hold up to basic analysis
by anyone who has traded on that data.

