In China; 1 + 1 = 7.7% GDP Growth (And Don't Argue)

With China’s shadow-banking system turmoiling and data not at all supportive of the same kind of growth investors are hoping for, some were surprised when China’s GDP magically turned out at the 7.7% expectations deemed acceptable by the government. As Xinhua reports, not all is as it seems.

China’s GDP amounted to 56.9 trillion yuan (9.3 trillion U.S. dollars) in 2013. However, the aggregate of the provincial GDP figures, which were independently calculated and released, was about 2 trillion yuan more than the 56.9-trillion-yuan figure arrived at by the NBS, even though three of the 31 localities that were yet to release the figures were not included.

This has aroused suspicion (just as we saw with the PMI data in the past) that some growth-obsessed local officials have cooked the books.

Via Xinhua,

…

For 2011, the aggregate GDP figure of all localities was 4.6 trillion yuan more than the NBS tally of 47.1 trillion yuan. In 2012, the aggregate figure was 5.76 trillion yuan higher than the total of 51.93 trillion.

…

“This is an old problem which recurs every time the data is released. The gap is mainly caused by duplicating calculation,” Zhang Liqun, researcher at the Development Research Center of the State Council, told Xinhua.

Overlapping calculation often occurs when a big company has many subsidiaries, Zhang explained. In this case, the added value of the subsidiaries tend to be double calculated.

…

“In this case, overlapping calculation is unavoidable,” he added.

Cong also pointed to price divergence among different regions as a major factor for the gap.

“For a certain product, you have a price in, for instance, Hebei Province. But the price of the same product would be different when it is sold in Beijing. However, the NBS statistics are based on a unified nationwide price.”

…

In addition to double calculation and price differences, experts pointed to the so-called “GDP obsession” of local officials as another key factor for the gap between national and local data.

“It is possible that the national and local aggregate figures are not in accordance, but that is not reasonable if local figures are higher year after year than the national, and never go in the other direction,”

…

At the press conference, even Cong of the NDRC admitted to the phenomenon.

“Due to local officials’ obsession with governing performance, the local figures will be more or less overblown. The NBS is working hard to correct this,” he told reporters.

…

Experts also suggest the assessment standards of local officials’ performance be comprehensively changed.

“In assessing local officials’ performance, we should not lay too much stress on GDP growth rate, but also care for areas related to social well-being, including improving the employment rate,” said Cai Zhizhou, a researcher with Peking University.

So, in summary, the number don’t add up; they never added up; local governemnt officials always overstate their performance… but they always have so don’t worry about it… oh and we always hit our expectations…

Is that why – all of a sudden – when the shadow banking system suddenly exposes those swimming naked, that capital markets in China are in a crunch?