Working Paper: NBER ID: w25754
Authors: Wei Chen; Xilu Chen; Changtai Hsieh; Zheng Song
Abstract: China’s national accounts are based on data collected by local governments. However, since local governments are rewarded for meeting growth and investment targets, they have an incentive to skew local statistics. China’s National Bureau of Statistics (NBS) adjusts the data provided by local governments to calculate GDP at the national level. The adjustments made by the NBS average 5% of GDP since the mid-2000s. On the production side, the discrepancy between local and aggregate GDP is entirely driven by the gap between local and national estimates of industrial output. On the expenditure side, the gap is in investment. Local statistics increasingly misrepresent the true numbers after 2008, but there was no corresponding change in the adjustment made by the NBS. Using publicly available data, we provide revised estimates of local and national GDP by re-estimating output of industrial, construction, wholesale and retail firms using data on value-added taxes. We also use several local economic indicators that are less likely to be manipulated by local governments to estimate local and aggregate GDP. The estimates also suggest that the adjustments by the NBS were insufficient after 2008. Relative to the official numbers, we estimate that GDP growth from 2010-2016 is 1.8 percentage points lower and the investment and savings rate in 2016 is 7 percentage points lower.
Keywords: China; National Accounts; GDP; Local Government Misreporting
JEL Codes: E01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Local government incentives to inflate GDP figures (H70) | Systematic misreporting of local statistics (C80) |
| Systematic misreporting of local statistics (C80) | Discrepancy between local and national GDP estimates (E01) |
| Discrepancy between local and national GDP estimates (E01) | Underestimation of GDP growth (E20) |
| NBS adjustments for discrepancies (E01) | Correlation with actual investment across provinces (C29) |
| Local government misreporting (H70) | Overestimation of both production and investment (E22) |
| Slowdown in Chinese growth since 2008 (F69) | More severe than indicated by official statistics (E26) |
| Shift towards consumption growth (F62) | Shift away from investment (E22) |