||the site of the world's highest railway, to Tibet (5,000 meters). The parade of gloating statistics would seem to portray a country that is larger than life-or at least larger and more illustrious than nations that must rely upon less quantifiable measures of worth, like, say, France.
YET THOSE FIGURES are themselves hardly scientific. Historians trace China's current economic boom back to Deng Xiaoping's famous "southern journey" to the city of Shenzhen in July 1992. Perched atop a golf cart, the 87-year-old paramount leader exhorted local authorities to redouble their efforts to attract foreign capital and open up the economy. The comments led to nearly a decade of double-digit growth. Or did they? Many of the white-hot numbers emerging from the People's Republic in the 1980s and 1990s are now thought to have been cooked up by eager-to-please cadres. The pressure on Chinese officials intensified after the 1997 Asian financial crisis, when Beijing decided that the country had to grow by at least 7 percent a year in order to create enough jobs to forestall social unrest. Not surprisingly, reported growth rates have not dipped below that level since then. After Deng's trip, the numbers reported by provincial authorities became "an important criterion in evaluating local government officials' performance," says Wang Xiaolu of China's National Economic Research Institute. "This [has] created the incentive for statistical falsification."
Economists and professional China-watchers have long taken Chinese numbers with a grain of salt, and no one seems to have been terribly hurt by the puffed-up stats. But the massive labor protests that roiled the rust-belt cities of Daqing and Liaoyang recently provide stark warning of the dangers of relying on smoke and mirrors. Thousands of the laid-off workers who took to the streets don't even exist in China's jobless statistics: they are considered xiagang , laborers who are offered a tiny monthly stipend from their former companies and who are thus not counted as unemployed. Protests most often stem from the fact that even those meager benefits have vanished into thin air. And if GDP growth really is much slower than officially announced-some economists think China could have grown as little as 3 percent last year-then such demonstrations are sure to intensify.
Chinese aren't bad at math: they invented the abacus as early as the third century. But in China, numbers can often seem little more than rhetorical flourishes. (Recently Premier Zhu Rongji spoke without irony about whether his government had achieved its promise of "one 'must', three completions and five reforms".) Today an element of fakery has crept into several major statistics put out by Beijing. Even some Chinese economists agree that, in addition to the marquee growth figure, industrial output numbers have been inflated. The official jobless rate is seriously understated, as are the billions in nonperforming loans that are dragging down Chinese banks. Don't even try to pin down China's military budget. Officially it was $17 billion last year, but the actual figure could be up to five times larger.
The real problem is that numbers in China are often more of a political than a scientific tool. During the disastrous 1958-1960 Great Leap Forward, Mao Zedong's regime trumpeted huge gains in steel production-thanks to backyard steel furnaces that were in fact useless-even as millions of Chinese starved to death. Sensitive death or casualty figures-whether from the 1976 Tangshan earthquake, the 1989 Tiananmen crackdown or the current HIV/AIDS crisis-are inevitably low-ball numbers. The biggest obstacle to objective statistical reporting is the fact that "provinces have a [political] imperative to meet or exceed certain targets," says a Western diplomat in Beijing. "So guess what? They meet or exceed their targets." Earlier this month the Guangzhou Daily reported that a township official in Hunan province had fudged GDP and profit figures-and was promoted to chief of a county statistics bureau.
Since 1998 nearly all Chinese provincial authorities have over reported growth rates, leading to a situation in which the sum of the parts adds up to more than the whole. (In statistics unveiled before the Chinese Parliament this month, every province but Yunnan reported GDP growth rates that exceeded the national figure of 7.3 percent.) In January, Hong Kong brokerage house CLSA declared that "the data that show China as the fastest-growing economy in the world are not worth the paper they are written on"; the company refuses even to forecast China's 2002 and 2003 GDP growth. Thomas Rawski, a professor at the University of Pittsburgh, has conducted probably the most exhaustive review of Chinese GDP growth figures by comparing them against energy consumption, farm output, industrial production and other factors like floods and drought. He says China's economy may actually have shrunk -minus 2.2 and minus 2.5 percent, respectively-in 1998 and 1999.
On the other hand, unemployment figures are downplayed in order to mask the suffering caused by economic reforms and restructuring. The official jobless rate of 3.6 percent in 2001 does not include xiagang workers, who are estimated to have numbered 10 million last year. Nor does it include farmers who have left their fields to find work in the cities-a "floating population" of around 150 million migrants who are at least seasonally unemployed. Tsinghua University professor Hu Angang has researched the problem using definitions of joblessness more in line with international standards. He concludes that China's unemployment rate was 7.6 percent in rural areas and more than 8.5 percent in the cities last year-well above the breaking point at which Beijing claims social turmoil is inevitable. "We're facing a flood of laid-off workers," warns Hu.
An even more urgent time bomb may be hidden in China's debt numbers. Central bank governor Dai Xianglong confessed to Parliament this month that national domestic debt was much higher than the official numbers-16 percent of GDP in 2001-suggest. Dai said the figure was closer to 60 percent if unfunded state pension liabilities, local government debt and major banks' nonperforming loans were thrown in. Dai's unusual candor is the good news. The bad news is that independent economists say Dai's statistics are still based on China's yearbook GDP growth statistics. A more realistic figure is higher still-closer to 100 or even 125 percent, according to economist Rawski. The bad-loan numbers at state banks alone are terrifying. The Bank of China has reported two different figures for its nonperforming loans in 1999-one based on Chinese methodology, the second more closely in line with Western accounting standards. The latter is 2.6 times bigger than the former. (The books of China's "Big Four" banks have been called "meaningless" by Moody' s.)
Skeptics say that such discrepancies prove the glam image of China in the popular imagination is, in fact, a sham. In "The China Dream," author Joe Studwell warns investors about "opening a statistical Pandora's box" when they try to measure China's potential. He argues that Beijing's economic foundations have been "laid on sand and constructed from the kind of hubris that drove the Soviet Union in the 1950s." Gordon Chang goes one step further by predicting "the coming collapse of China" within a decade in a book of the same title; he believes the regime will soon be unable to finance the deficit spending that has propelled China's recent growth. These pessimists pooh-pooh the corporate hype that portrays Beijing as a gateway to a vast ocean of 1.2 billion avid consumers. (Actually, many children haven't been counted by census takers, so the actual population figure is closer to 1.3 billion.)
What those bleak scenarios fail to take into account, however, is just how messed up Chinese numbers really are. Statistics have been distorted not only by political diktat, but by a bewildering array of technical complications such as conflicting definitions, murky price indexes and shifting methodologies as the country transforms from a centrally planned economy to something more in line with the market. Funny numbers-some too high, some too low-are embedded higgledy-piggledy throughout the system. Sometimes inflated numbers in one area are partially canceled out by underestimated economic activity in another: Rawski, for instance, says that pre-1997 growth figures were too low because they did not take into account burgeoning growth in China's service sector. "Some numbers are relatively reasonable and others are totally implausible," says author Nicholas Lardy, who has written extensively about the Chinese economy and banking system. "It's unfair to paint every statistic with a black brush."
For instance, there are good political-and practical-reasons for underreporting growth. Zhejiang province on China's bustling eastern seaboard is believed to have shrunk its figures to underplay its fast-developing private sector. Other wealthy provinces-Guangdong has been named-have apparently reported low-ball figures to avoid some tax payments to the central government. Even Beijing's statisticians regularly deflate the economic performance figures reported by provincial governments in a process called yasuo shuifen , "squeezing out the water." Officials say the revisions-a murky procedure involving citizens' sample surveys, price-index adjustments and not a little guesswork-ensures that national figures are relatively accurate. Central government statisticians at the National Statistics Bureau (NSB) "are not the cause" of the unreliability of Chinese numbers, says Rawski. "Rather, I see them as among the prominent victims."
Part of the problem, in fact, is that even if Beijing were interested in accurate, thoroughly transparent statistics, authorities would not have the means of producing them. The NSB "lacks the capacity to collect data outside normal information channels," says Rawski. Like other centrally planned economies, Beijing has traditionally derived its figures from a reporting system and not from sample surveys, which are less subject to political influences. "Unless the system is changed," says economist Min Tang of the Asian Development Bank, "you will have systematic overreporting." Chinese officials are working with the International Monetary Fund and the ADB to set up universal standards for the collection of information. The ADB has provided $600,000 to help Chinese authorities develop a survey sampling system for economic indicators; a trial project is taking place in Jiangsu province.
To Beijing's credit, some of China's most suspect numbers have been exposed because central authorities have begun to push for greater transparency. Recently a senior NSB official told the Financial Times that an internal investigation during the second half of 2001 revealed at least 60,000 violations of Chinese statistics law. Some of the worst news out of Chinese banks is emerging as domestically listed banks begin to adhere to stricter accounting standards in their reports. "The new directive that financial institutions must use international accounting standards suggests that central authorities are getting religion-maybe a little late, but they're getting it," says Lardy. As reforms mandated by Beijing's accession to the World Trade Organization take hold and government protectionism diminishes, Chinese firms will have to focus more on being genuinely competitive-and less on faking numbers that hide all their red ink.
The other good news may be that China, at least so far, doesn't seem to be Enron. Despite the grim reality behind its rosy statistics, the People's Republic has yet to implode. Officials have been able to head off major labor unrest with a combination of payoffs and the threat of force. With savings rates above 40 percent, huge bank holdings of domestic savings and $223 billion in foreign-exchange reserves-all of which are thought to be reasonably accurate numbers-China's buying power remains impressive.
Yet Beijing cannot expect its bogus books to be accepted with a wink forever. From the 1997 Asian Flu to crises in Russia and Argentina to the Enron debacle, most of the world's recent spectacular economic collapses were made worse by inaccurate data. Masking giant China's many problems will only guarantee that its stumbles will be more painful than they need be.
With Paul Mooney in Beijing
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