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China's regional GDP slowdowns raise suspicions over past data

Powerhouses Shanghai, Chongqing and 7 localities post negative growth

Shanghai's economy contracted 1.5% in October-December, compared with 17.3% growth the previous quarter.   © Reuters

BEIJING -- Many of China's provinces and top municipalities have reported rapid economic slowdowns for the last three months of 2017, with nine posting negative growth, raising suspicion that they had inflated growth numbers in the past. 

Economic powerhouses Shanghai, Chongqing and Zhejiang Province --where President Xi Jinping spent six years as Communist Party chief -- as well as six other localities said they saw negative nominal growth during the October-December quarter. All nine had enjoyed positive year-on-year growth until the quarter before. 

The economy in Shanghai contracted 1.5% in October-December from growth of 17.3% in July-September. Zhejiang Province's economy shrank 1.4% after growing 18.3% while Shandong Province contracted 7.8% from 16.7% growth. Seven other regions, including Beijing, Guangdong Province and Sichuan Province, suffered double-digit falls in their growth rates -- a seemingly implausible reversal barring some sort of financial crisis.

All together, the 31 localities saw their nominal growth rate fall to 4.3% in October-December from 13.8% in the preceding quarter, even though the national government said China's growth rate remained flat.

The sudden plunge and the difference from the national figure was likely the result of inflated economic data in previous quarters. So far, Liaoning Province, the city of Tianjin and the Inner Mongolia Autonomous Region have officially admitted that they had falsified figures. All three marked negative nominal growth afterward.

Doctoring numbers is not confined to the economically depressed provinces in the northeast, but also found in cities where many multinational companies operate. Regional bureaucrats are evaluated based on local growth and tax revenue, and many had overstated figures in hopes of advancing their careers.

But Xi has recently been focusing more on the quality of growth over raw numbers. Data falsification has gone down, now that bureaucrats are also being rated on poverty reduction and environmental protection. Many also want to correct the figures before the national statistics bureau starts compiling regional economic data in 2019, since any discrepancies discovered then will likely lead to penalties.

Because tax revenue targets are based on economic growth, bureaucrats that fake one often end up faking the other. But there is only so much a local government can do to inflate tax revenue, such as putting off corporate tax cuts, and eventually they have to come clean.

The corrections to regional statistics have started to affect central government numbers. China's figures for investment in fixed assets such as factories, buildings, roads and airports have begun to show discrepancies.

The National Bureau of Statistics in August began publishing a different growth rate from what the actual investment figures indicated. For example, it said fixed asset investment grew 7.2% in 2017. But there was only a 5.9% difference between its reported tally for 2016 and 2017.

A local analyst said that provincial governments overstated the figures in 2016 but began reporting the correct figures last summer, making it appear as though there had been less growth than there actually was.

Ning Jizhe, who heads the National Bureau of Statistics, said that corrections made at a provincial level will not impact the veracity of the nationally published figures. But the bureau draws part of its data from its regional arms.

"If the provinces report a lower gross domestic product, national GDP would fall as well," another local economist said.

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