China may be exaggerating the size of its economy to the tune of $1 trillion by releasing “willfully fraudulent” inflation and GDP [gross domestic product] data, according to a study out this week.
Numbers from the world’s second largest economy are treated with skepticism by some economists, but this latest report has attempted to quantify the scale of discrepancy.
“There is strong evidence indicating that the rate of real Chinese GDP growth, and ultimately total real GDP, may be significantly over stated,” said Christopher Balding, associate professor at Peking University’s HSBC Business School, and the report’s author.
Through “significant and systematic irregularities”, official estimates overstate China’s true GDP by 8 to 12 percent, or $1 trillion, according to Balding.
Balding looked at data from between 2000 and 2011, and found that inflation numbers had been manipulated in a way that distorted other measures such as GDP and disposable income.
“If inflation data is not accurate, or is willfully fraudulent, as appears to be the case, it will impact many other areas of economic and financial data leading to large disparities over time,” said Balding. “It is disturbing that a statistical body would so obviously manipulate and produce blatantly fraudulent data.”
In particular, the report focused on housing inflation data, which is one of the biggest items in the Consumer Price Index (CPI). China’s booming economy has caused people to migrate from rural areas to the expanding cities, causing house prices to rocket in industrialised areas. Yet official statistics showed rural house prices increasing more than those in urban areas, said Balding.
According to the National Bureau of Statistics China, the price of private housing in rural areas grew at 1.67 percent per year on average, more than three times faster than prices in urban areas, which averaged 0.53 percent.
In addition, official statistics suggest the price of private housing in China rose by a very modest 8.14% over the 11-year period, despite a housing market boom and a quintupling in nominal GDP.
“The claim that the housing component of CPI grew by less than 10 percent between 2000 and 2011 is nothing less than comical,” Professor Balding wrote.
Analysts have long-been been cautious of official Chinese data.
Qinwei Wang, China economist at Capital Economics, told CNBC that the discrepancy between official Chinese GDP data and Capital Economics’ own growth indicator became more apparent in 2012.
“Since 2012, our indicator suggests the slowdown in China has been faster than what official data showed. Our data suggests that the growth of China’s economy is 1-2 percent lower than official data, growing slightly above 6 percent.”
Balding said he hoped his research would change the way the Chinese authorities deal with data.
“I think the Chinese leadership is really struggling with the data. I don’t think they even know what is really going on within their own country,” he told CNBC.
“Hopefully this paper will spur the Chinese government to come up with better statistics to see what’s going on in the own country.”