The Indian Ministry of Finance has announced that the first quarter of the year saw rapid economic growth and has predicted that GDP growth could reach 8.5 percent this year. It also raised economic growth for last year to 7.4 percent, saying that India has caught up with China and is set to replace it as the world’s factory. It would thus seem that last year’s change of prime minister has been good news for India’s economic prospects.
However, when they appeared, these figures were widely questioned and in the end, the Indian government was forced to explain that it had changed how domestic output data were compiled so that the calculation now uses retail prices rather than factory prices when calculating manufacturing industry output, and admitted that this has boosted GDP figures.
Shamelessly, the government defended the change.
However, when a country calculates its national income, the added value of the wholesale and retail industries is already included in the domestic output that goes into that calculation. If the calculation of manufacturing industry output is based on retail prices, the production values of these three industries are counted twice, resulting in an inflated GDP. This means that India’s manipulation of its economic figures was exposed for the whole world to see.
Coincidentally, a US memo was released by WikiLeaks in December last year, revealing that Chinese Premier Li Keqiang (李克強) — who holds a doctorate in economics from Peking University — in 2007 as the then-Chinese Communist Party
secretary-general of Liaoning Province, told a US ambassador that China’s GDP figures were unreliable. Li said that instead of looking at the GDP figures, he looked at three other indicators, namely electricity consumption, rail cargo and bank loans, adding that GDP should only serve as a reference.
Some Chinese economic academics have also said that if the GDP of China’s 31 provinces as given in the China Statistical Yearbook (中國統計年鑑) are added together, the numbers do not tally with national GDP, and total provincial GDP always turns out to be higher than national GDP. For example, total provincial GDP last year was 4.7 trillion yuan (US$756.8 billion) higher than national GDP, and in 2013, it was 6.1 trillion yuan higher than national GDP. National GDP in itself is also being questioned.
In May, Citibank used the three indicators included in what is now sometimes called the “Keqiang index” — electricity consumption, rail cargo and bank loans — together with industrial output to produce an estimate showing that China’s official first-quarter GDP of 7 percent was overstated, and that the actual figure was below 6 percent. However, since the components of the Keqiang index have become public knowledge, these numbers are now also beginning to be manipulated and they are no longer as reliable as they used to be.
In April, the Wall Street Journal reported that some financial institutions were even more pessimistic about China’s first-quarter GDP for this year, and the most pessimistic among their forecasts showed growth of a mere 3.8 percent. Dong Dasheng (董大勝), a Former Chinese National Audit Office deputy auditor-general, said that the manipulation of China’s economic figures has been rampant in recent years and that this has resulted in greatly overstated figures that must be dealt with on a year-by-year basis if they are to be corrected.
Even in the world’s major economies, there is a fair amount of manipulation of economic figures going on. The Australian media have been critical of Australian figures, saying that the country’s high official GDP growth figures were suspicious in the face of an economic crisis, and the Japanese securities firm Nomura Securities Co has said that there was a huge gap between its own GDP estimates and official Japanese GDP figures.
Furthermore, British media reported in 2011 that the official UK export figures had been inflated by at least US$9 billion. Another point worth mentioning is the way Greece — to be able to join the eurozone — falsely reported in 2001 that its financial deficit accounted for less than 3 percent of its GDP. This, of course, contributed to the ongoing Greek financial crisis.
In the past, both the reliability and the timeliness of Taiwan’s economic statistics were often praised internationally, but the situation has deteriorated since the beginning of the 21st century, and now it is not much better than in many other countries. When Taiwan’s unemployment rate surged during former president Chen Shui-bian’s (陳水扁) terms in office, the government categorized unemployed people who were willing to seek a job but were not doing so as not being part of the labor force in order to reduce the impact of the high numbers.
In recent years, the Directorate General of Budget, Accounting and Statistics (DGBAS) was persuaded by a certain finance minister with a background in quantitative economics to change how Taiwan calculates its GDP numbers. The result was that Taiwan’s GDP growth in the fourth quarter of 2013 surged, boosting GDP for that year to 2.11 percent.
The DGBAS later further adjusted annual GDP to 3.09 percent, which was the second-
highest among the four Asian Tigers that year. Last year and this year, Taiwan’s GDP growth has been the highest among the four. The problem is that these inflated figures are disconnected from the actual economy. Although officials repeatedly brag about the nation’s economic growth and feel good about themselves — or deceiving themselves — the general public do not benefit from that growth.
Politicians are very fond of manipulating economic data. In the West, it is called “massaging the statistics,” but if the manipulation goes too far, it can easily turn into “statistic surgery.” If that happens, they will lose all credibility, and that would be a dangerous situation.
Norman Yin is a professor of financial studies at National Chengchi University.
Translated by Eddy Chang
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