SinoInsight 1
Beginning in 2018, the bulk of local statistics bureaus in China appeared to no longer publish raw economic data in various fields, including for fixed assets investment and industrial enterprises above designated size. For instance, the Shandong Provincial Bureau of Statistics did not release the original data on total retail sales of social consumer goods in 2018.
Instead of releasing raw data, local statistics bureaus have been releasing growth rate figures that cannot be checked or corroborated.
OUR TAKE
1. The CCP regime has a long history of data fabrication, and official figures always have to be taken with a grain of salt even when the Chinese economy is doing well.
For local governments to avoid releasing raw data and only issue unverifiable growth rates suggests that China’s economy is doing so poorly that data fraud cannot adequately gloss over the actual situation.
2. China’s economy started to slow down noticeably last year. Several provincial governments appeared to be preparing for the downturn in early 2018 when they announced that their GDP figures from previous years were fraudulent (by as much as 20 to 40 percent lower in some cases). For instance, Tianjin trimmed 30 percent off its 2017 GDP growth figure of 1 trillion yuan, adjusting growth for that year to 665.4 billion yuan.
Some provinces also subtly changed the output growth benchmark for defining industrial enterprises above designated size to not account for underperforming industries in the final calculation. For example, Inner Mongolia reduced the output growth for industrial enterprises above designated size in 2016 by 290 billion yuan ($43.145 billion), or a 40 percent reduction in output growth.
Meanwhile in 2018, the National Bureau of Statistics used a “comparable caliber” in calculating the profits for industrial enterprises above designated size. With the “comparable caliber,” profits magically grew by 10.3 percent instead of falling by 11.8 percent when calculated using conventional statistical methods.
By fudging figures, local governments gave themselves “room” to report better growth numbers later. Even so, China’s economic figures in 2018 still looked terrible.
3. The unwillingness of local governments to release even padded economic data creates an investment risk and could deter businesses. Going forward, investments in China could shrink further and the deterioration of the economy could accelerate.
SinoInsight 2
Li Zhanshu, chairman of the National People’s Congress Standing Committee, delivered his work report at the Two Sessions on March 8. In his work report, Li said that the NPC will focus on implementing “major legislative items” determined by the central government, including a property tax.
OUR TAKE
1. Li Zhanshu’s work report indicates that the CCP is determined to start collecting property taxes. There is a good chance that property tax legislation will be passed this year and tax collection will begin in 2020.
2. Premier Li Keqiang’s government work report proposed to cut taxes, lower social security premium rates, and reduce government administrative interventions. However, it appears that the CCP does not plan to scale back on the size of government to cut back on fiscal expenditures. Instead, the CCP is planning to levy a property tax to open up new streams of government revenue.
We anticipate that a property tax will rise land and labor costs for enterprises. Enterprises will end up incurring a heavier financial burden, which in turn could have the effect of further worsening the Chinese economy.
3. If the markets anticipate the levying of a property tax next year and there is a wave of property selling, then China’s property sector could be greatly impacted. In this scenario, there is a risk that China’s property bubble could puncture.
