China economic data could understate growth

BEIJING: For years, economists have suspected China of puffing up its economic growth, fearful that confessing to a less than rosy performance could erode social stability and investor confidence.
Many still think China is cooking its books, but now some are pushing a new theory, that it is playing down growth, which could be rather higher than the official numbers.
The thinking is that China may be leaving itself wiggle room so that if hard times hit, it can still report solid performance and avoid unnerving its people - and cash-rich investors.
For instance, it could let Beijing smooth over any sharp falls as a result of the deadly SARS virus, which is already denting tourism and retailing in Asia and could dull the shine on the region''s brightest spot if not controlled soon.
"There are good reasons to be sceptical", Lehman Brothers analyst Rob Subbaraman said of China''s economic data in a research report.
"The conventional wisdom is that China''s official statistics overstate GDP growth. But mis-measurement can cut both ways: we judge that the economy could be growing faster than the official numbers suggest, perhaps as fast as 12 percent", Subbaraman said.
China said first-quarter gross domestic product - the broadest measure of economic activity -was up 9.9 per cent on a year earlier, rising much faster than the official target of seven per cent growth in full-year 2003 GDP. The economy last year was eight per cent larger than in 2001.
Subbaraman arrived at his higher figure by averaging growth in industrial output and an expenditure index he had compiled to try to get a clearer picture of economic activity.
Such views mark a departure from the past several years, when some economists argued that China overstated growth to cover up a drastic slowdown caused by the Asian financial crisis.
One chief proponent, Thomas Rawski of the University of Pittsburg in the United States, estimated total economic growth from 1997 to 2001 was 12 per cent, far less than the 34.5 per cent claimed by Beijing.
But there have been signs that, despite refusing to reveal their exact methodologies, China''s top statisticians are taking their jobs more seriously.
Last April, China joined an International Monetary Fund programme aimed at improving data quality. An IMF team is to visit China in July to assess the work.
"I am sure China has been making progress in data compilation and methodology", said Ichiro Otani, the IMF''s senior resident representative in Beijing.
A string of directives and surveys by Beijing has been aimed at gathering more reliable data than that handed up by local officials more interested in pleasing political bosses than in assuring statistical accuracy.
"The official Chinese data are more trustworthy than often thought, and generally are becoming more, rather than less, reliable", said the latest issue of the China Economic Quarterly, an independent journal published in Hong Kong.
"The problem is not the faking of data but the failure of the traditional reporting system to capture economic activity dispersed among hundreds of thousands of small enterprises lying outside the traditional state sector", the journal said.
Still, doubts remain, even among government economists who usually defend the official line.
A senior economist said he believed China had fiddled with the gross domestic product figure for the last quarter of 2002 to spruce up this year''s accounts and to give a new government something to boast about.
Some investments and exports appeared to have been shuffled to the first quarter of this year, said Bai Hejin, former chief of a think tank run by the powerful State Development and Reform Commission.
"The new leadership did not want to see the economy growing at a slower pace", Bai told Reuters on the sidelines of a financial forum.
"Local governments were advised to understate 2002 fourth quarter GDP so the yearly comparison during the fourth quarter this year will look better".