Rust-Belt Province in China Fabricated Fiscal Data from 2011–2014
Despite a global economic slowdown, one Chinese province was somehow able to report solid gross domestic product (GDP) numbers. Now we know why. Local officials in Liaoning province, in northeast China (bordering North Korea) have admitted to fabricating economic data from 2011 to 2014.
A number of officials in different cities in the rust-belt province of Liaoning cooked the books and reported fraudulent economic data. Why? To advance their careers. Fiscal revenue was inflated by more than 20%. Other economic data was also fudged, according to the state-run People’s Daily, although what that other economic data is wasn’t specified. (Source: “This Chinese Province Says It Faked Fiscal Data for Several Years,” Bloomberg, January 17, 2017.)
Advertisement
While the fake economic data made the corrupt officials look good, it also meant the province received less in transfer payments. This translated into a higher tax burden for residents of Liaoning province.
According to an audit report, the lies got bigger and bigger each year after 2011. In 2014, when the economic deceit was at its zenith, government officials had inflated their data by as much as 23%! Not surprisingly, suspicions were raised when the province reported a double-digit decline in revenue in 2015.
The truth shall set you free.
For reference, Liaoning has, if you believe the province’s GDP data, the largest provincial economy in northeast China, accounting for 49% of the region’s GDP. In 2011, the first year of the deceit, the province’s nominal GDP was reported as $348.0 billion. This made it the seventh-largest provincial economy in China (out of 31). Its per capita GDP was reported as $6,177. (Source: “Liaoning Province,” Nederlandse Vertegenwoordigingen China, last accessed January 18, 2017.)
While the province has only admitted to cooking the books from 2011 to 2014, the legitimacy of Liaoning’s entire economic data should be open for debate. I enter as evidence: from 2006 to 2009, the GDP in the region advanced faster than any of the country’s other three main economic regions (East, center, and West). In fact, the rust-belt has outpaced China’s GDP every year since the late 1990s. Liaoning’s GDP really started to pull away from the rest of the country in 2008.
Doubts Remain Over Reliability of China’s GDP Data
Hu Xingdou, an economics professor at the Beijing Institute of Technology, said recently that making up economic data was a widespread practice on the mainland. To avoid future embarrassment, he says there should be greater autonomy between local governments and statistical departments. There should also be more media scrutiny of government authorities, but in a country rife with scandal, this probably won’t happen. (Source: “Chinese province admits to cooking its books,” South China Morning Post, January 18, 2017.)
In light of the Liaoning fiasco, the credibility of China’s GDP should be taken with a grain of salt. China’s President Xi Jinping said China’s economy will remain stable and continue to grow.
Maybe.
According to economists, China’s economy most likely advanced 6.7% in the fourth quarter. That is the exact same pace as in the first three quarters of 2016. Even the officials in Liaoning could figure out that this means that the GDP in the second-largest economy in the world grew at 6.7% in 2016. This would be the weakest GDP growth since 1990. In 2015, China’s GDP was 6.9%. (Source: “China’s fourth quarter growth seen steady at 6.7 percent amid heavy government support,” Reuters, January 18, 2017.)
This does not bode well for China in 2017. The only reason why China has been able to support decent GDP growth is that there has been an eye-watering amount of stimulus for infrastructure, and record bank lending. Which sounds eerily familiar.
This has raised concerns about debt risk, a cooling housing market, and what will happen to the broader economy when stimulus measures are pared. And who knows what will happen to the Chinese economy if President-elect Donald Trump imposes massive tariffs on Chinese goods.
Because of all these factors, 2017 could be the year that China’s economy hits rock bottom. Full-year GDP of 6.7% will look like the good old days if GDP plunges to 6.0% in 2017, as more than a few analysts have warned.
