Statistics that Don’t Add Up

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China is a big, fast-moving place, and it generates A Lot of statistics. These statistics get fed in to economic models, are relied upon when making business decisions, and are even written about in blogs…but can they be trusted?

We have noted problems with Chinese statistics before – restated GDP numbers , different figures from different sources, and misleading definitions. More questions are now being asked about GDP figures – The Economist reports:

    “Amazingly, most economists reckon that China has understated its growth in recent years. The country’s National Bureau of Statistics (NBS) has recently revised China’s GDP growth up by half a percentage point for both 2006 and 2007, to 11.6% and 11.9% respectively, thanks to stronger growth in services, which government statisticians find harder to count than industry. Yet even these revised numbers may be conservative.

    Chinese provinces independently report GDP, and a weighted average of their figures consistently gives higher rates of output and growth than those reported by the central government…For instance, the figures first published for 2004 showed that the sum of the provincial GDPs was 19% bigger than the reported national figure. Lo and behold, in 2005, after a national economic census picked up more services, the NBS revised its GDP up by 17%; it also lifted the annual growth rate over the previous decade.

    Stephen Green, an economist at Standard Chartered, calculates that in 2007 the combined output of the provinces was 10% more than that reported by Beijing. Their average growth rate of 13.1% was also still 1.2 percentage points higher than the revised national growth rate, although the gap has narrowed from almost three points in 2005.”

The Economist also provides a guide (developed by Goldman Sachs) to the reliability of official Chinese numbers. It gives a score to different sets of stats, 5 being the most reliable, and 0 the least:

    • Foreign Trade: 5
    • Money Supply: 5
    • Industrial production: 4
    • Consumer Prices: 4
    • GDP: 3
    • Retail Sales: 3
    • Fixed Investment: 2
    • Employment: 2
    • Average Earnings: 1
    • Unemployment: 1

The Economist article ends with a warning, that makes for a great quote:

    “Now that China is such an engine of global growth, it urgently needs to improve its economic data. Only a madman would drive a juggernaut at full speed with a faulty speedometer, a cracked rear-view mirror and a misty windscreen.”

Quite! It is important to remember not to take all the numbers coming out of China at face value. When doing research and analysis it is also a good idea to know the source, understand the definitions and methodologies used, cross-reference different sources, do a reality check against related measures, get input from people locally (a specialist consultant, ideally) – and be aware that the numbers, even if they are correct, are likely to change quickly.

See news source:

    An aberrant abacus
    1 May 2008 … Coming to terms with China’s untrustworthy economic numbers. … An aberrant abacus. May 1st 2008 From The Economist print edition …

2 Responses to “Statistics that Don’t Add Up”

  1. Big Says:

    What if China has two speedometers, one real, one for statistics releases ?

    It is quite understandable why the provincial figures are higher than the central government once. In the past, the performance of local government officials are linked to their GDP growth. It is natural to report on the high side. The central government has to release believable numbers, and hence the lower.

    Statistics in China is for the good of revolution, not to be accurate.

  2. duncan Says:

    My memories on the Goldmans scale were rather that it was meant to reflect “usefulness” rather than reliability, which meant incorporating how much the figures concerned drove government policy, as well as how realistic they were.

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