Why China's Official Economic Numbers Shouldn't Be Trusted

Transcript

STEVE INSKEEP, HOST:

If it were possible on the radio, we should broadcast each story about China's economy with an asterisk. For example, China's economy slowing down, asterisk. The footnote would mention that we don't know how much. Like the United States, China does publish economic numbers. Unlike the United States, nobody believes these numbers. That even applies to a number that almost every country uses. Here's David Kestenbaum of NPR's Planet Money team.

DAVID KESTENBAUM, BYLINE: When you ask, is a country's economy is crashing, is it slowing down, there is a number you can look at, GDP, gross domestic product, the sum total of everything a country produces. And according to the Chinese government, the economy's growing at a very healthy pace, 7 percent a year. At least that's the official number.

CHRISTOPHER BALDING: I think in reality, it's probably much lower, probably in the 1 to 2 percent range in all likelihood.

KESTENBAUM: Christopher Balding is a professor of economics in China at Peking University. He says you can feel the economy slowing. Five years ago, there were buildings popping up almost overnight.

BALDING: And now you talk to people and businesses are laying off people. Migrants from the countryside are returning home.

KESTENBAUM: So if you're right, the official GDP numbers are basically a total fiction.

BALDING: I think that's a pretty reasonable statement, yes.

KESTENBAUM: Even people in the government don't seem to believe the official government numbers. Mark Williams is an economist with Capital Economics.

MARK WILLIAMS: One of the cables of the WikiLeaks release included a comment from the current prime minister of China, Li Keqiang. He said that GDP data were manmade, and he doesn't trust them.

KESTENBAUM: Williams says in China, local officials are judged by how well their province is doing. So there's an incentive all the way down the line for people to goose the numbers, which means it is not like China's officials have a second set of books with the true GDP numbers in them. They don't know either. In those WikiLeaks documents, China's prime minister said that when he wants to know how the economy is doing, he ignores GDP, and he looks at other numbers.

WILLIAMS: One of the alternative indicators that he said was better to look at was electricity output. So ever since he said that, actually, people have now started to say, well, hang on a minute; maybe that's what we should be tracking as well.

KESTENBAUM: Electricity output, it's a clever idea. Factories use lots of electricity, so if electricity usage slows down, that could mean the economy is slowing down.

Do you think China's economy is slowing down?

WILLIAMS: Oh, without doubt, without doubt.

KESTENBAUM: How worried should we be?

WILLIAMS: I don't think that we're seeing the economy collapsing, which is what a lot of people are arguing right now. We're just seeing a period of weak growth.

KESTENBAUM: Mark Williams thinks China's economy is growing at something like 5 or 6 percent a year - not as good as the official 7 percent, but not as bad as some people fear. And he says it's possible even his calculations are leaving something out. China's economy is not just about factories anymore. In the last decades, they've built shopping malls and health clinics and movie theaters and restaurants. Ted Wang grew up in China. Now he works at a hedge fund called Puissance Capital. He sees this economic shift in his own family.

TED WANG: My sister runs a 10,000 square feet coffee shop called Omar's Coffee. It's O-M-A-R, Omar's Coffee.

KESTENBAUM: That is a huge coffee shop.

WANG: And there is, you know, five coffee shops like that.

KESTENBAUM: All in his hometown, which, when he was growing up, did not have a stoplight. Wang says if you try to add up the new economy, coffee shops, people going to movies, taking vacations, China is actually doing OK - maybe not as good as the official numbers, but OK. David Kestenbaum, NPR News. Transcript provided by NPR, Copyright NPR.