China ‘Faked’ More Than $1 Trillion In Economic Data: Study

China’s actual GDP size could be $1 trillion less than what the government claims it to be, said a professor from the HSBC Business School at Peking University this week, arguing that the government had deliberately manipulated housing price data between 2000 and 2011 in order to produce lower inflation results.

China’s actual GDP size could be $1 trillion less than what the government claims it to be, said a professor from the HSBC Business School at Peking University this week, arguing that the government had deliberately manipulated housing price data between 2000 and 2011 in order to produce lower inflation results.

In his working paper, entitled How Badly Flawed is Chinese Economic Data? The Opening Bid is $1 Trillion, Christopher Balding noted that Chinese house prices had risen by just 8 percent between 2000 and 2011, according to the National Bureau of Statistics of China (NBSC); but this was happening during a period when China’s nominal GDP had quintupled and its money supply expanded by six-fold.

Additionally, the NBSC data showed that the price of private housing in urban areas had grown at just 0.53 percent annually, more than three times slower than the growth of rural housing.

And to compound the apparent data manipulation, the NBSC also utilised a straight 80/20 weighting of the urban and rural population, despite the fact that nearly two-third of Chinese households lived in rural areas in 2000, while the urban population rose to only 51 percent in 2011 based on third party data.

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Finally, to cap everything off, housing prices barely contributed to the nation’s official consumer price index. Between 2000 and 2010, housing costs made up just 13 per cent of China’s official consumer inflation basket. Comparatively in Hong Kong, for example, housing costs makes up 32 percent of the composite consumer price index.

The consequence of the housing price manipulation was the inflation was greatly understated. All told, when Balding re-adjusted the data to take more accurate assumptions about Chinese living costs, he sees an extra 1 percent of inflation each year.

Incorporating this change in the Consumer Price Index into real GDP calculations reduces total actual GDP by a mid-range estimate of 8-12 percent or about $1 trillion in purchasing power parity (PPP).

“The primary point of the paper is not simply to reveal more discrepancies in the Chinese economic data, which it does, but also to measure the impact of these fraudulent statistics on real economic activity,” Balding said on his website, Balding’s World.

[quote]“To anyone who is alive and has heard of China, these numbers are not simply questionable but downright comical and fraudulent,” he added, describing the government statistics as “so fraudulently manipulated as to be Alice in Wonderland absurd.”[/quote]

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“It is disturbing that a statistical body would so obviously manipulate and produce blatantly fraudulent data,” Balding writes in his paper. “Given the relative ease with which obvious statistical manipulation was found, it is quite likely that less obvious fraud is present.”

[quote]“When you simply make economic data up, of course the numbers are always going to look good,” he remarked.[/quote]

Download Christopher Balding’s Full Working Paper Here