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Since the days of Deng Xiaoping, the Communist Party of China has leaned heavily on its ability to deliver rapid growth in order to secure its political legitimacy and avoid social instability. Today, as China’s communist leaders face an array of challenges to their rule, including the proliferation of information technology and the disturbing rise of income inequality, corruption, and inflation, it appears that they may be manipulating China’s economic growth data.
Over the past few years, China’s economic growth rate—once a wonder of the world—has appeared to sputter and slow down. From stock market turbulence to abandoned construction projects, international observers have noticed signs of trouble, setting off a heated academic and public debate. While some blindly deny the slowdown and continue to propose China’s heavily state-managed economy as a model for growth, this new debate has drawn attention to the question of whether China’s growth statistics are reliable in the first place.
Both inside and outside of China, there is heavy skepticism about the accuracy of the PRC’s macroeconomic indicators. In 2007, Li Keqiang, then the Premier of China, remarked that China’s GDP figures were “man-made” and therefore “unreliable.” The trend of China’s GDP and other macroeconomic figures since then seems to verify this cynicism: everything seems to be too good to be true. In 2015, the Chinese government set a growth target of about 7 percent. Despite ample evidence of contraction in the industrial sector, China’s growth statistics hit a bull’s eye of about 7 percent during every quarter of that year. However, while China’s overall GDP growth in 2015 was reported at 6.9 percent, its electricity consumption rose by only 0.5 percent. And while that 6.9 percent growth rate is only down by 0.1 percent from 2014, this tiny drop has sent China’s commodity prices plummeting, electricity consumption dipping, car sales evaporating, and close trading partners like Singapore into recession. The fact that China is able to release its GDP figures only 14 days after the end of each quarter without subsequent revisions raises further suspicions.
These discrepancies have led some, like former Morgan Stanley economist Andy Xie, to put Chinese GDP at closer to 4 or 5 percent. These revised forecasts reveal that despite the Chinese government’s efforts to hide the truth, the Chinese economy is currently experiencing its slowest growth in at least 25 years. Many economists and the IMF also seem pessimistic about China’s medium-term economic prospects. However, Chinese officials have every incentive to conceal these discouraging signs from the public.
The most obvious problem with China’s GDP calculations arises from the structural and organizational flaws of the communist party system. For one, Chinese officials have clear incentives to manipulate growth statistics, since hitting the growth targets is the easiest way for them to get a promotion. According to Xie, “China does not have an independent statistics bureau…It depends on local governments reporting the numbers from the bottom up, and local governments do have an incentive to distort numbers.” In 2015, many officials in the northeastern provinces of Heilongjiang, Jilin, and Liaoning admitted they had been overestimating their growth statistics.
This is not the first time China has “injected water” into its growth figures. The most notorious case of manipulation came in 1998, after the Asian financial crisis. China claimed to grow by 7.8 percent that year, while many Asian countries suffered recessions. (Other indicators predicted around 5 percent growth.) Nor is China the first communist regime to use growth propaganda to maintain social stability and improve its international standing. In its day, the Soviet Union’s apparently successful growth model was also envied by some western observers, though since then scholars have calculated that its actual growth rate was likely dramatically lower than the 13.9 percent officially claimed for 1928-41—and coincided with millions of deaths caused by state coercion and manufactured famine. Even the growth rates of the 1950s and 60s, claimed to be over 10 percent, were most likely only around 4-7 percent. Many scholars conclude that the Soviet Union’s official statistics, just like China’s, were vastly exaggerated.
As with the Soviet Union, China’s problems go to the root of its political-economic system. The Chinese Communist Party remains largely opaque and unaccountable to the public, factors that ultimately increase, not decrease, social instability. With the Party’s legitimacy resting largely on its ability to achieve economic growth, the slowing global economy poses a substantial threat to China’s social stability. The conditions that allowed China to grow at 7 percent a year in the recent past are unlikely to continue in the years to come. As such, the Chinese government needs to stop preferring propaganda to truth. After all, even those who insist that there is a government role in pushing growth ought to insist on transparency, accountability, and respect for human rights.