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How Much Is China Cooking Its Numbers?


For the past decade, China's gravity-defying economic performance has been the envy of the rest of the world. Growth has bobbed along at 7% or 8% even as expansion in the West was dropping toward zero. All the while, hard-core skeptics argued that China's numbers are as cooked as a pot of rice--and that the country's growth has been far less miraculous than official figures suggest. Ditto for trade and foreign-investment data. If the skeptics are right, China's fuzzy math could have major implications for the pace of economic reform. Slower growth means fewer new jobs. It also means lower government revenue, making the creation of a social safety net for millions of displaced workers that much harder.

The debate over China's numbers is now getting louder than ever, partly because China itself has raised the subject in some recent pronouncements. What initially grabbed the attention of China hands was some gimlet-eyed research published last December by Thomas G. Rawski, a University of Pittsburgh economist. He wrote that China's growth since 1997 may have been no more than 40% of official rates. The proof, Rawski says, lies in proxies for growth such as energy use. He says it is implausible GDP expanded 24.7% from 1997 to 2000, as officials maintain, given that Beijing acknowledges a 12.8% drop in energy consumption during the same period. Rawski's most startling assertion: While Beijing reported 7.8% growth in 1998 and 7.3% in 1999, China's economy may actually have contracted 2% and 2.3% in those years. He guesses the economy has been growing at 3% to 4% since then.

There's certainly something fishy going on. The question is how fishy. Former World Bank Chief Economist Joseph E. Stiglitz maintains that the evidence of China's vigorous growth is plain to see, both in the cities and the countryside. But even the Chinese themselves admit data from the provinces that is used to compile national numbers is exaggerated. Zhu Zhixin, the director of the National Bureau of Statistics, told the National People's Congress in early March that the NBS had uncovered at least 60,000 violations of the nation's statistics law between May and October of last year alone. "We need better control over data," Zhu conceded.

Does all this matter much to foreign direct investors? Sure, if China's economy is imploding. Otherwise, no. Investors rely on hard data culled from their own market research and sales figures. "Growth does matter, but whether it's 5%, 6%, 7%, or 8% doesn't," says Joseph M. Johnson, senior vice-president of Unilever Best Foods in Shanghai. "Even if there were a year or two when growth was way off, that's not enough to prevent multinationals from being here or coming into the market." In other words, as long as China's middle class, now 100 million strong, keeps growing--and no one questions that it is--there will be new buyers for Unilever's shampoos, detergents, and ice cream.

Johnson's confidence, of course, is born of a conviction that the massive unemployment, poverty, and corruption being produced by China's market reforms will not swell into a social revolution. Fred Hu, Hong Kong-based managing director for Goldman, Sachs & Co., says even in a best-case scenario, reforming the state sector will cause "tremendous stress, lots of difficulties, pain, and potential for social unrest." If the stats skeptics are right, the strains on the system may prove greater than anyone is now predicting. By Frederik Balfour in Hong Kong


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