LIES, DAMNED LIES, AND CHINA´S ECONOMIC STATISTICS / THE WALL STREET JOURNAL ( HIGHLY RECOMMENDED READING )

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Updated July 25, 2012, 1:31 p.m. ET
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Lies, Damned Lies, and China's Economic Statistics
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By TOM ORLIK

China's statisticians get a tough press. After all, it was Europe, not China, whose fudged public finance data helped usher in the latest round of global financial turmoil. The biggest corporate fraud in recent memory isn't China's Sino-Forest, but America's Enron.






.But a secretive single-party state claiming rapid growth as the rest of the world hovers on the brink of recession naturally arouses suspicion.




.The official numbers show growth in China's gross domestic product at 7.6% year-on-year in the second quarter. Critics cite an array of contradictory figures as evidence that number is exaggerated. Electricity consumption rose only 4.3% in the second quarter, oil demand fell 0.4% according to energy consultancy Platts, and profit for cement producers fell more than 50%.

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Those kind of cross checks have some intuitive appeal. But alternative data points aren't as representative of the overall economy as they appear. Take electricity. The industrial sector accounts for 73% of electricity consumption but only 48% of GDP. A slowdown in industry would hit the voltage numbers more than overall growth.





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Another concern, the numbers used as evidence that the official data are distorted also come from official sources. Data on stagnant growth in steel, cement, and electricity production, often cited to discredit the National Bureau of Statistics, are all produced by the National Bureau of Statistics. It's not clear why one set of official data should be seen as any more reliable than another. Indeed, with sector data often difficult to collect or dependent on outdated samples, it is frequently less reliable than the overall growth figures.





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Data doubters also take a partial view of the numbers. Industrial profits fell 2.4% year-on-year for the year to May. But profits are only one slice of the economy's income cake. Wages rose 13.1% in the first half, a shade above GDP growth. Industrial firms' tax payments rose 10.6%, reflecting rising sales.




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China's statistical system is also improving. The main problem with the data has always been meddling local officials massaging up the growth numbers for their patch. From the beginning of 2012, 700,000 firms—accounting for the lion's share of industrial output—now report directly to the NBS in Beijing, aiming to cut local politicians out of the equation.




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For all the suspicion, there is no smoking gun that convicts China of murdering the data. Even so, the margin for error in measuring China's vast and rapidly changing economy is larger than it is in the U.S. Local politicians have been shoved aside, but it is possible national leaders are continuing to tweak the data in a harmonious direction.




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China's statisticians could do more to bolster confidence. Greater transparency on the methodology behind the data, and publication of enough information to allow independent replication of GDP numbers, would be an important step. But as long as China's remains a single-party state, suspicions about the reliability of the statistics will remain.




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