University Times

While neighboring countries have struggled to recover from the Asian financial crisis of the late 1990s, China has been claiming economic growth rates of 7 percent or better in recent years.

But a Pitt economics professor says those claims are exaggerated — so much so, that China's growth since 1997 may have been only 40 percent of official rates.

Thomas G. Rawski has been making headlines internationally with his published findings that official measures of provincial and national growth have succumbed to jiabao fukuafeng (a wind of falsification and embellishment).

"My research convinces me that it is entirely possible that the Chinese economy actually contracted by about 2 percent in 1998, when the government was reporting an increase in GDP [Gross Domestic Product] of 7.8 percent," said Rawski. "A similar contraction may have occurred during 1999."

Chinese reports of 7-8 percent growth during the last two years "probably are exaggerated, too," but closer to reality than the official numbers from the late 1990s, Rawski said.

Examining publicly available sources such as The China Statistical Yearbook ("the skeptic's bible," he calls it) and Chinese press reports, Rawski detected trends that contradict claims of economic growth: declining energy consumption, sluggish retail sales, falling incomes in rural areas, and a steep decline in employment growth. Rawski also questions how farm output could have increased during 1997-98 in all but one province (as the government reported) despite floods that ranked among China's worst natural disasters of the 20th century.

"The year that I studied most closely was 1998. And, to me, the single most convincing element [contradicting growth claims] was civilian airline traffic," Rawski said.

"We know that, in China, income inequality is large and expanding rapidly. So, whatever income growth was in 1998, rich peoples' incomes would have gone up faster, and rich people are more likely to travel by airplane. On top of that, there was a price war in China's airlines industry in 1998. Fares were routinely discounted by 30-40 percent.

"So, you would expect passenger traffic to have gone up pretty significantly, for three reasons: incomes reportedly went up, incomes among the higher-paid segment of the population would have gone up even more and there was this huge reduction in ticket prices. But, in fact, civilian airline traffic increased by only 2.4 percent. That just doesn't fit with an overall GDP growth of 7.8 percent."

As vigorously as Rawski defends his conclusions, he cringes at the way some news media have reported them.

"How Much Is China Cooking Its Numbers?" asked the April 8 international editions of Business Week, in a cover story focusing on Rawski's research. Singapore's The Straits Times quoted Rawski in a March 27 story, "Is China's Economic Growth Just a Charade?" while a story in the April 11 South China Morning Post began, "Economist Thomas Rawski has underlined a long-held suspicion that China's growth is not what it seems to be….While China's statistics are getting more accurate, it is no secret that there is a fair amount of shui fen, or water, added to the data. China's economists and their statisticians admit to the problem."

Rawski knew China's economic rivals and political critics would seize upon his findings. "Some people say they don't believe anything the Chinese say, that it's all a pack of lies, but I'm not among them," said Rawski. He disputed the reference to China's "cooking" of statistics ("'Cooking' is not a word I would use," he said. "It's neither fair nor accurate in describing what's going on in China.") Rawski is sensitive to sensationalistic paraphrases of his work for two reasons: He doesn't want hypersensitive Chinese officials to cancel his visa to do research in China this summer, and he doesn't want to insult Chinese economists and statisticians, most of whom he considers to be conscientious and hard-working — whether or not they agree with his analyses.

"I think there are a lot of people in China who are sympathetic with my perspective," he said. "I've been in the offices of the [Chinese] National Bureau of Statistics (NBS) when Chinese colleagues have said to me: 'Look at these data from such-and-such a province. They make no sense. Who can believe these exaggerated numbers? But we can't do anything about it, because we have a vertical system and our job is just to assemble and integrate the information we receive from the provinces.'"

According to Rawski, a retired NBS director said that keeping accurate statistics was particularly difficult in 1998, commenting that "deceiving the nation and tricking the people can lead to untold disasters." Premier Zhu Rongji himself complained in 2000 that statistical falsification and exaggeration were rampant.

Rawski argues that falsely upbeat reporting is endemic to all large bureaucracies, not just quasi-socialist economies or China in particular. He compared China to an American city where the mayor pressures staff to inflate census numbers so the city will get more federal aid, or a U.S. military force in which generals seek to bulldoze pet weapons systems through Congress, while discouraging underlings from reporting system breakdowns and safety concerns.

Rawski described the following scenario for China's skewed economic reporting: "In 1998, Chinese policy-makers were very concerned about a possible downtrend in the economy due to the Asian financial crisis, which hit some of the most dynamic sectors of their economy, such as exports and foreign investment," he said.

"This was an economy that already was experiencing substantial difficulties; 1996 and 1997 were years of steeply declining job creation, large-scale layoffs in the urban sector, and very poor household incomes in the villages. In 1995, the Chinese had discovered idle capacity all over the place in the manufacturing sector.

"So, this already-troubled economy gets slammed by the totally unexpected Asian crisis, and China's government tries to prop up the economy through deficit spending and cutting interest rates, exactly the measures that would be undertaken here under similar circumstances. The government also announces a campaign to achieve 8 percent growth during 1998. Provincial officials were told, 'Whatever segment of the economy you're responsible for must contribute its share to 8 percent growth.' Shanghai's municipal government even ordered its subordinate units to draw up plans to achieve 12 percent growth. All plans that did not call for 12 percent growth were returned for revisions.

"These kinds of instructions were passed down the ladder. That, in my opinion, is where the trouble started."

Pressured to meet impossible goals, local and provincial officials submitted exaggerated or even fabricated reports to national statisticians, who were powerless to verify the numbers. "There's an old slogan: Officials make statistics, and statistics make officials — meaning, if you produce the right statistics, you get promoted," said Rawski. "My concern is that, in this environment, these same political pressures could engulf the National Bureau of Statistics itself."

Rawski doesn't know what motivated Chinese senior officials to set unrealistic economic goals in the first place. "I study China's economy, not its politics," he said.

But he noted that the souring of China's economy coincided with Zhu Rongji's succession as premier. "A political scientist colleague of mine has pointed out: Here you had a new administration, the economy is already facing difficulties, and then comes this Asian financial crisis. My colleague suggests that this [exaggerated economic reporting] was done to preserve the legitimacy and reputation of the new government."

— Bruce Steele