China’s economy is around 12 percent smaller than official figures indicate, and its real growth has been overstated by around 2 percentage points annually in recent years, according to new research. The findings in the paper published on Thursday by the Brookings Institution, a Washington think-tank, reinforced longstanding skepticism about Chinese official statistics. They also add to concerns that China’s slowdown is more severe than the government has acknowledged. Even based on official data, China’s economy grew at its slowest pace since 1990 last year at 6.6 percent.
The paper’s analysis covers 2008 to 2016, so it does not contain an estimate for last year’s growth in a gross domestic product or the size of the Chinese economy. But if 2018 GDP were overstated by the same degree as the authors estimated for 2016, it would imply that actual 2018 GDP was Rmb10.8tn ($1.6tn) below the official figure of Rmb9otn.The Chinese government’s emphasis on numerical targets – a legacy of Maoist state planning – has made growth in GDP a politically sensitive figure. The Communist party evaluates local cadres’ performance based largely on growth in their respective regions.
“Since local governments are rewarded for meeting growth and investment targets, they have an incentive to skew local statistics,” said the authors led by Chang-Tai Hsieh, economist at the University of Chicago Booth School of Business and research associate at the US National Bureau of Economic Research.