November 10, 2004

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Not adding up

It's long been known that China's economic statistics are rubbish and tell you little about the true state of the economy. Here's some more proof. When you add up the weighted average of each province's GDP growth, you get an annual GDP figure of 13.5%. The nationally reported figure is 9.7%. Even more interestingly, only one province out of 31 reported a number below the national figure, and when added together the provincial GDP numbers by value are almost 20% higher than the national figure of 5.88 trillion yuan (about US$750 billion). The provinces calculate these numbers independently of the central Government, but the scale of the differences are so alarming that Beijing is sending investigation teams to some provinces.

The stats are falsified for all sorts of reasons. Telling the truth has little benefit in China. Instead provincial officers are trying to make their province look better and prove the leadership of each province is delivering economic growth. On the other hand the national Government is trying to slow China's rapid economic growth to check rising inflation and to prevent a crash. Thus national figures duly reflect a slight slowing in the national economy. China's former Premier Zhu Rongji made assertions that the national numbers are the correct ones and launched efforts to correct false numbers. It doesn't seem to have helped.

Yet another road-bump China needs to get right as it moves to becoming a market economy. A Government cannot manage a vast economy without knowing what's going on. Or perhaps it's for the best: maybe China is undergiong the biggest experiment in laissez-faire economics the world has ever seen. Ironic for a Communist Government, but it seems to be working so far.

posted by Simon on 11.10.04 at 09:38 AM in the China economy category.


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Lies, damn lies, and Chinese statistics
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Weblog: Sic Sequitur
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Unfortunately it is not laissez-faire because the government still has its hands on the levers of about 2/3 of the economy through SOEs, directs lending to some extent, fixes the exchange rate, controls the money supply etc. So if they are taking actions based on completely made up numbers they have the power to irreparably damage the economy.

Plus laissez-faire assumes that people are making business, investment and consumption decisions based upon their knowledge of how things really are. However, a significant portion of the population may take these numbers at face value, not realize their contradictions and take actions based upon them.

Most laissez-faire economists, whether Austrian or Chicago school would say that the amount of distortions of the price signals in the Chinese economy would not support the thesis that it is an experiment in anything remotely resembling laissez-faire.

posted by: kennycan on 11.10.04 at 12:14 PM [permalink]

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