Caixin
Jan 19, 2017 08:14 PM
ECONOMY

What’s Behind China’s Mass Fabrication of Official Figures?

(Beijing) — China’s continuous better-than-expected GDP figures in recent years, which claimed annual growth of 7.76%, 7.67% and 7.4% respectively between 2012 and 2014, have prompted a wave of skepticism and criticism from economists and the media over the credibility of the country’s statistics.

“All economic data is best viewed as a peculiarly boring genre of science fiction, but Chinese data is even more fictional than most,” said Paul Krugman, a Nobel Prize-winning economist, in a New York Times opinion piece published in 2013.

Chinese state media are quick to defend the credibility of official figures, often arguing the transparency of the independent system for data collection from Chinese provinces set up in the 1990s, or citing the country’s subscription to the International Monetary Fund’s Special Data Dissemination Standard at the end of 2015.

But state-backed media have also been quick to report several data-manipulation cases uncovered by the anti-corruption watchdogs, including an investigation reported by the official Xinhua News Agency that uncovered rampant mass fabrication of figures two years ago in the northern provinces of Heilongjiang, Jilin, and Liaoning — where at least 20% of the region’s fiscal revenues were exaggerated.

However, Beijing’s once-lackadaisical attitude toward fabricated data appears to have come to a sudden end. On Tuesday, in a rare confession, the governor of Liaoning province, the only area in China currently in recession, admitted that the economic figures from 2011 to 2014 were inflated.

“Fiscal-data fabrication by cities and counties in Liaoning province was common and went on for a long time, with many parties involved and various tricks applied,” Chen Qiufa said in his work report to the local legislature.

The statement came as a surprise to the public, said Ye Qing, deputy director of the Hubei Statistics Bureau.

The fact that Chen made the comments at such a high-profile meeting was designed to intimidate other officials following suit, added Ye, who is also a professor at the Finance Ministry-backed Zhongnan University of Economics and Law.

Those implicated included government officials of all levels whose promotions were closely linked to higher economic growth under a policy of “taking economic development as the central task” — a core principle of China’s policy of reform and opening-up launched by Deng Xiaoping three decades ago.

But those directly benefiting from the fabrication of data have been city mayors, who could be promoted to be local party chiefs, as well as deputy mayors who could take over as mayors, according to Ye.

However, China has developed a mechanism to safeguard its data. “One million large-scale companies have access to an online platform, and their fiscal data can be sent directly to the central government. In addition, National Statistics Bureau (NBS) have 20,000 officers specialized in confirming the data,” NBS Director Wang Baoan said last year.

But local governments still have tricks up their sleeves to find ways to bypass this mechanism. One win-win practice between local government and companies is a “tax return policy.” The authorities first encourage companies to make out fake invoices, then tax this part of the nonexistent income before finally returning the money back to the firm in other forms like allowances and subsidies, which is called “returned tax.” In this way, the government gets a higher revenue figure while companies make a profit.

Around 2011, Tianjin Airlines faced a choice over locating one of its offices in either Xi’an or Tianjin. Finally, the company chose Tianjin, as the local government there offered a higher value of “returned tax,” said a source with a city-level tax bureau who asked not to be named.

“This policy was widely used by local tax bureaus up until May last year, but national tax bureaus never do this because they have an online invoice management platform linking directly with the central government and major companies,” the source added. In May, China launched a nationwide reform program to replace business tax with a value-added tax system.

Xinhua disclosed a series of such cases last year. Thirty-nine companies in Hengshan county, central Hunan province fabricated a combined 4.4 billion yuan ($642 million) output while the real figure is only 580 million yuan. Five companies in Changsha city exaggerated their output at a rate 80 times higher than the real figure. Many companies were still reporting output during production halts.

Despite central government leaders, including President Xi Jinping and Premier Li Keqiang, having repeatedly vowed to punish data manipulators in recent years, local officials are still willing to cook the books as the risks involved seem quite acceptable.

The worst penalty for an individual involved in data manipulation is to have their Communist Party membership revoked. In serious cases, they could be placed on so-called probation within the party, but in less-serious cases, violators could receive a warning as punishment, according to Chinese Communist Party disciplinary regulations.

In a case exposed by China’s top anti-graft watchdog last year, the Central Commission for Discipline Inspection, the district government of Suzhou, Shanxi province, made up 5.04 billion yuan worth of asset-investment projects, and 1.8 billion yuan in government revenue.

A string of officials in Suzhou district, including the mayor and the deputy mayor, a district statistics bureau director and the deputy director, NBS’ urban economic survey team leader, and two officials received punishment, ranging from warnings to demotion.

Contact reporter Song Shiqing (shiqingsong@caixin.com)

You've accessed an article available only to subscribers
VIEW OPTIONS
Share this article
Open WeChat and scan the QR code
GALLERY