How China Fudges its Numbers

June 19, 2013, 12:42 PM

How China Fudges its Numbers

It’s typically advisable not to accept Chinese economic data at face value –as even the country’s own premier will tell you. Figures on everything from inflation and industrial output to energy consumption and international trade often don’t seem to gel with observation and sometimes struggle to stack up when compared with other indicators.

How the figures are massaged and by whom is as much a secret as the real data itself. But in an unusual move, the National Bureau of Statistics – clearly frustrated with the lies, damn lies – has recently outed a local government it says was involved in a particularly egregious case of number fudging, providing rare insight into just how just how we’re being deceived.Acording to a statement on the statistics bureau’s website dated June 14 (in Chinese), the economic development and technology information bureau of Henglan, a town in southern China’s Guangdong province, massively overstated the gross industrial output of large firms in the area.

An investigation by the state statistician into a sample of 73 out of a total 249 firms counted in the data found that 38 were too small to be counted as large firms and so shouldn’t have been included, and a further 19 had either stopped production, moved out of the town or otherwise ceased to exit.

The statement said that 71 companies surveyed by the statistics bureau had industrial output of 2.22 billion yuan ($362 million) in 2012 in total, but that the local government recorded it as being 8.51 billion, almost four times as much as the actual figure.

The data was supposed to be contributed by the firms themselves using an online platform. Instead, employees of the Henglan economic development bureau entered the figures themselves from their office, the statement said. It also said that by May or June last year the relevant government leaders in Henglan knew about the distortions but chose not to do anything about it.

Calls to the Henglan economic development bureau Wednesday went unanswered.

The statistics bureau doesn’t say why Henglan inflated its industrial output numbers. But indications that a local economy is sagging could reflect poorly on the prospects for promotion of local officials, and China’s southern provinces have been particularly hard hit by the global slowdown in demand for the country’s exports. Factories have closed, moving inland and overseas in search of cheaper labor, denting local government revenues.

“When governments are looking to burnish their track record, that can put the local statistics departments in a very awkward situation,” said a commentary piece that ran Tuesday in the Economic Daily (in Chinese), a newspaper under the control of the State Council, China’s cabinet. The article said that one of the biggest obstacles to ensuring accurate data is that the agencies responsible for crunching the numbers aren’t independent from local authorities. Moreover, it argues that penalties for producing fake data were too mild to act as a deterrent.

The National Bureau of Statistics said that it pursued the Henglan case on a tip from a whistleblower. How widespread the problem is elsewhere in the country is anyone’s guess. And sure, this may have been going on for years with little real impact on economic decision making. But with China’s growth slowing for first time since becoming a major player in the global economy, artificially inflated figures threaten to further complicate efforts by companies and governments everywhere to gauge what that slowdown means for them.

China Says Trade Figures Inflated by Arbitrage With Hong Kong

China said data on trade with Hong Kong were inflated by arbitrage transactions that skirted rules, the government’s most explicit acknowledgment that export and import figures this year were overstated.

The transactions “resulted in abnormal growth in mainland-Hong Kong trade for a few months” since the fourth quarter, Shen Danyang, a Commerce Ministry spokesman, said at a monthly briefing today in Beijing. “Even if these arbitrage trades are not necessarily illegal, they are not fully compliant with regulations. That’s why the government has been concerned about this.”

Trade growth slowed “sharply” in May due to curbs on China-Hong Kong transactions that were exchanges of money rather than true trade, Shen said, building on a June 8 customs administration statement that attributed the slowdown in part to a crackdown on arbitrage deals. Weakness in trade may test Premier Li Keqiang’s reluctance to add stimulus to support expansion in the world’s second-biggest economy.

The May data reflected “the current grim and complicated foreign trade situation,” Shen said.

Shen didn’t elaborate on the arbitrage transactions or how much they inflated trade figures. Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong, said in a report last month that ruses may have included exports and imports that enabled money flows for people engaged in arbitrage between the onshore and offshore exchange rates for the yuan.

Ideal Channels

Lu speculated that shipments of gold in and out of Hong Kong have been for this purpose, since valuable goods with low transportation costs are “ideal channels” for hot money flows, according to the report.

May exports rose 1 percent from a year earlier, down from 14.7 percent in April, while imports dropped 0.3 percent from a year earlier. The median estimates of analysts were for 7.4 percent export growth and 6.6 percent import gains.

“The economic fundamentals for arbitrage trade are shifting as expectations for the yuan to depreciate start to emerge,” said Ken Peng, a BNP Paribas SA economist in Beijing. “Even without trade curbs, the motivations for bringing hot money into China are limited.”

Economists in a survey last month said January-April export growth was overstated by 4 to 13 percentage points. Shipments abroad probably rose 8.5 percent in the first four months of 2013 from a year earlier, based on the median estimate of 15 economists, less than half the official 17.4 percent number. Imports may have gained 8.25 percent, according to 14 analysts’ median estimate, compared with the government’s 10.6 percent figure.

To contact Bloomberg News staff for this story: Xin Zhou in Beijing at xzhou68@bloomberg.net