Share on facebook
Share on twitter
Share on telegram
Share on whatsapp
Share on linkedin
Share on print
Share on email

Risk Watch: What it Means When Two Chinese Provinces Admit to Faking Data

◎ In the first two weeks of 2018, the local administrations of Inner Mongolia and Tianjin confessed to having previously faked economic data.

In the first two weeks of 2018, the local administrations of Inner Mongolia and Tianjin confessed to having previously faked economic data.

On Jan. 7, the Inner Mongolia authorities declared that its industrial data for 2016 was inflated by 40 percent (290 billion yuan, or about $45 billion) and its fiscal revenue for that year should be revised down by 26 percent. Meanwhile, the authorities of Tianjin’s Binhai district admitted that its 2016 GDP figure was closer to 665 billion yuan instead of its earlier stated official figure of 1 trillion yuan, meaning that the Binhai government had overstated the district’s GDP growth by nearly a third.

Both Inner Mongolia and Binhai authorities announced the discrepancies in their economic figures as provincial and city governments were preparing to report their 2017 GDP figures.

The backdrop: Provincial authorities cooking GDP figures is a hangover practice from the Jiang Zemin era (1998-2012) and an open secret. Chinese officials rushed to inflate their GDP data because their promotion was benchmarked to securing stellar economic numbers, and for many years regional GDP figures curiously outstripped the national GDP.

In 2015 for example, the National Bureau of Statistics announced a national GDP of 67.7 trillion yuan, but summing up the individual GDP of China’s 31 provinces results in a total GDP of 72.5 trillion yuan. The 4.8 trillion yuan difference between the two figures is equivalent to Jiangsu Province’s nominal GDP in 2015.

Another prominent case of fake data involves the northeastern province of Liaoning. In January 2017, the Liaoning authorities admitted to fabricating fiscal data from 2011 to 2014. The confession came after central inspection team probes in 2014 and 2016 found the Liaoning authorities guilty of cooking economic data. And when premier Li Keqiang was Liaoning chief in 2007, he famously stated that China’s GDP figures were all “man-made.”

Why it matters: Given that Inner Mongolia and Tianjin had faked their 2016 GDP figures by 30 to 40 percent, it is likely that other provincial administrations had too overstated their GDP by at least 20 percent. This means that local government debt could rise substantially.

Our take:
1. Beijing has frequently denied faking economic data (only Li Keqiang has been somewhat honest), so why confess now? One very likely possibility is that the economic situation in China is very severe, and the various local governments can no longer afford to fabricate data without inviting trouble upon themselves.

  • 1.1. Local administrations hugely disadvantage themselves by faking data. That’s because the central authorities will reduce funding to areas that report healthy fiscal revenue, resulting in those regions having less money for fiscal expenditure.
  • 1.2. Provinces with higher revenue have to pay more taxes. This increased tax burden was previously passed on to businesses, a practice that worsens the economic situation over time.

2. Since taking office in 2012, Xi Jinping has purged many Jiang faction officials and shifted the official evaluation benchmark from GDP growth to environmental protection. So it makes sense that Chinese officials are now exposing their predecessors’ fraudulent practice to pass the buck and protect their political achievements.

3. America’s 2017 economic policies (tax cut; Federal Reserve increasing interest rates and shrinking balance sheet) may lead to the Chinese economy experiencing a “bank run” effect. China’s future economic outlook is very gloomy. Exposing the 2016 GDP figures as fake serves to cover up the extent to which the Chinese economy has deteriorated in 2017 and give the impression of “growth.”

4. The Xi leadership’s emphasize on “high-quality development” and environmental protection appear to be partly efforts to redirect attention away from China’s economic decline.

What’s next: We believe that other provincial governments, particularly those whose leadership changed hands after the 19th Party Congress reshuffle, will start reporting earlier fabricated GDP figures.

Search past entries by date
“The breadth of SinoInsider’s insights—from economics through the military to governance, all underpinned by unparalleled reporting on the people in charge—is stunning. In my over fifty years of in-depth reading on the PRC, unclassified and classified, SinoInsider is in a class all by itself.”
James Newman, Former U.S. Navy cryptologist
“Unique insights are available frequently from the reports of Sinoinsider.”
Michael Pillsbury, Senior Fellow for China Strategy, The Heritage Foundation
“Thank you for your information and analysis. Very useful.”
Prof. Ravni Thakur, University of Delhi, India
“SinoInsider’s research has helped me with investing in or getting out of Chinese companies.”
Charles Nelson, Managing Director, Murdock Capital Partners
“I value SinoInsider because of its always brilliant articles touching on, to name just a few, CCP history, current trends, and factional politics. Its concise and incisive analysis — absent the cliches that dominate China policy discussions in DC and U.S. corporate boardrooms — also represents a major contribution to the history of our era by clearly defining the threat the CCP poses to American peace and prosperity and global stability. I am grateful to SinoInsider — long may it thrive!”
Lee Smith, Author and journalist
“Your publication insights tremendously help us complete our regular analysis on in-depth issues of major importance. ”
Ms. Nicoleta Buracinschi, Embassy of Romania to the People’s Republic of China
"I’m a very happy, satisfied subscriber to your service and all the deep information it provides to increase our understanding. SinoInsider is profoundly helping to alter the public landscape when it comes to the PRC."
James Newman, Former U.S. Navy cryptologist
“Prof. Ming’s information about the Sino-U.S. trade war is invaluable for us in Taiwan’s technology industry. Our company basically acted on Prof. Ming’s predictions and enlarged our scale and enriched our product lines. That allowed us to deal capably with larger orders from China in 2019. ”
Mr. Chiu, Realtek R&D Center
“I am following China’s growing involvement in the Middle East, seeking to gain a better understanding of China itself and the impact of domestic constraints on its foreign policy. I have found SinoInsider quite helpful in expanding my knowledge and enriching my understanding of the issues at stake.”
Ehud Yaari, Lafer International Fellow, The Washington Institute
“SinoInsider’s research on the CCP examines every detail in great depth and is a very valuable reference. Foreign researchers will find SinoInsider’s research helpful in understanding what is really going on with the CCP and China. ”
Baterdene, Researcher, The National Institute for Security Studies (Mongolian)
“The forecasts of Prof. Chu-cheng Ming and the SinoInsider team are an invaluable resource in guiding our news reporting direction and anticipating the next moves of the Chinese and Hong Kong governments.”
Chan Miu-ling, Radio Television Hong Kong China Team Deputy Leader
“SinoInsider always publishes interesting and provocative work on Chinese elite politics. It is very worthwhile to follow the work of SinoInsider to get their take on factional struggles in particular.”
Lee Jones, Reader in International Politics, Queen Mary University of London
“[SinoInsider has] been very useful in my class on American foreign policy because it contradicts the widely accepted argument that the U.S. should work cooperatively with China. And the whole point of the course is to expose students to conflicting approaches to contemporary major problems.”
Roy Licklider, Adjunct Professor of Political Science, Columbia University
“As a China-based journalist, SinoInsider is to me a very reliable source of information to understand deeply how the CCP works and learn more about the factional struggle and challenges that Xi Jinping may face. ”
Sebastien Ricci, AFP correspondent for China & Mongolia
“SinoInsider offers an interesting perspective on the Sino-U.S. trade war and North Korea. Their predictions are often accurate, which is definitely very helpful.”
Sebastien Ricci, AFP correspondent for China & Mongolia
“I have found SinoInsider to provide much greater depth and breadth of coverage with regard to developments in China. The subtlety of the descriptions of China's policy/political processes is absent from traditional media channels.”
John Lipsky, Peter G. Peterson Distinguished Scholar, Kissinger Center for Global Affairs
“My teaching at Cambridge and policy analysis for the UK audience have been informed by insights from your analyzes. ”
Dr Kun-Chin Lin, University Lecturer in Politics,
Deputy Director of the Centre for Geopolitics, Cambridge University
" SinoInsider's in-depth and nuanced analysis of Party dynamics is an excellent template to train future Sinologists with a clear understanding that what happens in the Party matters."
Stephen Nagy, Senior Associate Professor, International Christian University
“ I find Sinoinsider particularly helpful in instructing students about the complexities of Chinese politics and what elite competition means for the future of the US-China relationship.”
Howard Sanborn, Professor, Virginia Military Institute
“SinoInsider has been one of my most useful (and enjoyable) resources”
James Newman, Former U.S. Navy cryptologist
“Professor Ming and his team’s analyses of current affairs are very far-sighted and directionally accurate. In the present media environment where it is harder to distinguish between real and fake information, SinoInsider’s professional perspectives are much needed to make sense of a perilous and unpredictable world. ”
Liu Cheng-chuan, Professor Emeritus, National Chiayi University