China's GDP Gets Real

It is now well known among China observers that GDP figures are man made. This is doubly true for local and provincial governments that do their own calculations. Adding up all the provincial GDP figures results in growth far above the national total. In past years, promotions within the party were based in part on GDP growth and this fueled the building frenzy along with the loose statistical standards. My favorite article on the topic remains this one from 2004: Lies, damn lies and Chinese statistics
Take two municipalities for example: Beijing declared that its 2004 interim GDP increased by 15.4% year-on-year, while the adjacent Tianjin city quoted 15.9%. Given that the former is preparing itself for the 2008 Olympic Games, its rapid GDP growth is understandable, but no one has any clue as to why Tianjin is growing even faster.

This is now changing.

China’s Provinces Fail to Meet Lower 2014 Growth Goals: Economy
Almost all Chinese provinces failed to meet their growth targets in the first quarter even after scaling back their ambitions as the government instructs officials to focus on reining in debt and curbing pollution.

Thirty of 31 provinces and municipalities reported missing their goals, with the biggest shortfall in northeastern Heilongjiang, where an expansion of 4.1 percent compared with an 8.5 percent target for the year. Most localities’ targets are lower than in 2013. The latest data were released by government websites and newspapers.

......Six provinces missed their goals by more than 3 percentage points. In Hebei, where the government is cutting steel capacity, growth was 4.2 percent, compared with a target of 8 percent. The province surrounding Beijing is the country’s biggest steelmaker, accounting for about a quarter of national output last year, and its cities are shrouded in smog.

The world’s second-biggest economy is going through “a difficult period of adjustment,” former central bank adviser Li Daokui said in Beijing on April 27. The government will stabilize growth in the second half, including by speeding economic changes to allow more private investment, Li said.

In Shanxi, a region hit by slumping coal prices and mine closures, an expansion of 5.5 percent compared with a full-year target of 9 percent. Heilongjiang, Hebei and Shanxi are “all provinces which suffer relatively severe overcapacity,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong.

......The latest numbers indicate that a divergence between local and national data is narrowing. The total of local numbers for nominal first-quarter gross domestic product was 3.7 percent higher than the national figure. That compares with an excess of almost 11 percent in 2013.

Regions have an incentive to avoid inflating growth figures now that officials are being judged on an array of issues including debt and the environment, not only gross domestic product.

......Local-government borrowing will be an “important indicator” in regional officials’ performance reviews and people should be punished for decisions that “result in huge losses to the country,” waste resources or cause ecological damage, the official Xinhua News Agency reported in December, citing the Communist Party’s Organization Department.

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