Introduction
The economy has always been of great relevance and significance for empires and states. In fact, the expansion of empires and colonial periods can be better understood from the perspective of economics. Historians and academics are of the view that the expansion of empires and colonization, of states by colonial powers, was motivated (primarily) by economic factors. Also, we learned that economic changes yield new political-social realities, which give direction to civilizations evolution[1].
In these contemporary times too, both economics and economy have great importance. Governments are extremely sensitive regarding economic growth, general inflation, and employment level, within a country, which is why they devise strategies, policies to realize their economic objectives that also overlap their political-social objectives. In fact, contemporary states synchronize their political-social objectives with their economic objectives. In some cases, prudent governments use the economy as a tool to bring about changes in social and political realms.
Socialist countries, in particular, use the economy as an instrument or a catalyst for change. The examples are of former the Soviet Union and China. Post-capitalist economies, such as the United States and Britain, also use the economy as a utensil to realize the range of political-economic and political-social objectives. In fact, the use, of the fiscal instrument (expansionary fiscal policy), during recessions and depressions, is an attempt to change political, economic and social realities using the economic instrument.
As China is a socialist state, with a One-party system, it is natural that China’s prime emphasis is on its economy. Since the end of the Chinese Civil War, in 1950, the Chinese regime experimented with economy several times. During the Cultural Revolution, it emphasized on local production and heavy industry. The Communist Party opposed private sector and discouraged foreign investment (in any sector of the economy). The first watershed was Deng Xiaoping’s economic reforms, which introduced market-economy to China [2]. These changes encouraged the private sector and foreign investment (Foreign Direct Investment inflows), which were essential to transform the Chinese economy from a stagnant and less-industrialized economy to an expanding and robust industrialized economy. However, the real changes, in the Chinese economy, started to occur and appear in early and mid-90s (because of the flight of capital and technology into China). Since then, Chinese economy has grown at a phenomenal rate, which majority of economists acknowledge [3].
Chinese Economy
The Chinese economy has become world’s largest economy, and as per well-researched projections, in 2050, the Chinese economy will be the largest economy in the world, surpassing the United States’ economy. In fact, in 2050, the Chinese economy will be twice the size of the American economy (at that time). For this reason alone, the Chinese economy is an interesting subject for both economists and states (rivals or allies of China).
From the statistics, we learn that in the mid-90s, Chinese economy started to grow at an exceptional rate. This phenomenal economic expansion was partly because of the globalization of world economies, and primarily because of China’s economic policies, which focused on Foreign Direct Investment (inflows). Chinese economists, who worked for the state, had identified Foreign Direct Investment as an engine of growth, which would not only expand the Gross Domestic Product, but it would also improve the quality of the economy. In China, quality of the economy was a serious issue, and it felt that it would require enormous time to modernize its industry [4]. To address this challenge, it devised policies about FDI. The objective was to encourage international investors to invest in particular/selected sectors of the economy, which the Communist Party considered essential for rapid economic growth and modernization of the Chinese economy.
From the study of GDP growth rate, we learn that for a very long period, from 1964 to 1992, the Chinese economy has remained volatile; however, China’s economy stabilized once it truly opened up. The real major challenge it faced, in last two decades, was The Great Recession, which jolted its economy. During this period, China’s economy took several extraordinary measures to improve its economy. However, despite taking significant measures to keep employment level and GDP growth high, China’s economy failed to produce desired results. For political-economic reasons, Chinese authority allegedly tampered with data about economic growth. We must also acknowledge that Western economic institutions have always been skeptical of China’s official data and there are several reasons for that, which will be discussed in detail in this academic exercise about the accuracy and validity of China’s official economic data.
Political-economic System and Emphasis on Economic Progress
China’s political system is based on Marxian concepts, and therefore, it is no surprise that Communist party gives supreme preference to the economy. Deng Xiaoping’s economic reforms, which are considered a major watershed in post-Civil War China’s history, are an example of that preference/importance. From the study of Communist Party’s agenda and strategy, we learn that Communist Leadership believed that it could achieve political stability and social progress by accomplishing economic goals, which were political-economic and socioeconomic in detail [5]. Therefore, we observe that Communist Leadership experimented with economy several times. In fact, it introduced controlled, market-economy or regulated capitalism to China, which was against Marxian concepts.
From the study of the literature, related to political-economy and society, of China, we also learn that to establish a grip on China, Communist Leadership relied on the economy. It was because the volatile political economy might have produced extreme political-social realities (political uprising against the Communist Leadership), which could have dismantled (violently), the entire political-economic system and it would have an adverse impact on society.
The continuous economic progress keeps employment rate and economic growth high. Unemployment directly affects political stability and ensures that consumption remains high, which is essential for long-term economic progress. On the other hand, economy’s expansion ascertains those opportunities are produced, at large scale, for private sector or entrepreneurs.
From the study of China’s political system and environment, it is evident that political dissidence exists and to suppress that dissidence, the Chinese government has devised various strategies and policies. One of the strategies is to ensure that the employment rate remains high in China. Also, the pace of economic growth must also remain high. Several studies have suggested that political volatility is directly and positively associated with economic instability. It implies that whenever there is economic instability, the political system starts to shake. If economic instability is of an extreme nature, then the political system will crumble. Also, political stability and economic progress depend upon one another. If a country is politically unstable, then the economy will not swell. Therefore, statistics about the economy have great significance and relevance. Also, economics related statistics directly influence related investment decisions [6].
The relevance of Economic Health for Local and International Investors
The importance of the economy has been well established in this academic exercise. For instance, we have learned that economic progress is essential to political-economic objectives. However, in case of China, it is also essential to maintain control over the political-economic system. Chinese authorities/strategists, use economic progress as a tool or instrument to maintain hegemony. Also, economic progress is also used as propaganda tool not only for locals/nationals, but also for the international community.
It is comprehensible why the Chinese government/authorities use statistics, in a particular manner, for locals. Economics related statistics, which are mostly self-explanatory, provide an understanding regarding the performance of government. For instance, if the growth and employment rates are high and inflation around 4%, the government has done a fine job. However, if the unemployment rate is evidently higher than the natural rate of unemployment and economic growth is stagnant, then a government has performed poorly. For a dictatorial government, statistics are of great concern. It has to prove its worth and justify its rule through political stability and economic progress. For international community too, these statistics are used as an argument in favor political-economic system of China [7].
We must acknowledge that an ultimate objective of any political-economic system is social, political and economic progress and prosperity. In contemporary times, economic progress is also understood as prosperity. However, many studies have proved that it is a flawed concept. Economic growth does not usually translate into social and economic prosperity. One such example is Saudi Arabia, where high economic growth, the petrol – economy, could not translate into social prosperity and political progress. It is also true for the Chinese economy, which political system has not changed drastically, despite unusual economic progress.
As statistics have relevance for Chinese authority, therefore, it is imperative for Chinese authorities show high economic growth, as it endorses the claim that China’s political system and governance are superior to Capitalist political-economic models. Also, better economic numbers encourage investment, which is a high priority of Chinese government. China has used foreign investment as mean to transform its economy. The dividends, of foreign investment in China, have been huge. Therefore, economy’s health must be in perfect condition and must not represent, in any manner, weakness of bad-governance [8].
Since the sub-prime mortgage crisis, the Chinese economy is in turmoil. As per some economists, China’s inability to address the economic recession depicts the volatility of the Chinese economy. It also suggests that Chinese economy does not have a strong foundation. The skepticism regarding the economy grew further, when Chinese official data, about the economy, was found fudged.
China has long been accused of fudging economic data for political, economic reasons. In the 50s, 60s, and 70s, the fudging of data was for purely political reasons. However, after 2000, the fudging of data was not entirely for political reasons, but primarily for economic reasons. For instance, China lures investors to invest in China’s economy, constructing a pleasant picture of the economy (through the tempering of data). The investment serves multiple political and economic purposes. One of the political-economic purposes is to increase the stakes of the international business community in China, which gives China a unique advantage [9].
Inflated Economic Statistics
To understand why China, inflate its data related to the economy, it is imperative to understand that how political economy works in China. The Chinese government set targets for each province and then distribute resources to these provinces to achieve economic targets, which also overlap political targets (Hornby, Zhang and Pong 2018). During this period, Chinese central government uses fiscal instrument intensely to facilitate provinces in realizing their political-economic objectives. The example is of Western China, which is economically underdeveloped in comparison to the eastern regions of China. To economically develop that region, China has started massive projects in this region, such as Belt Road Project. Simultaneously, provincial governments are facilitated and pressured to achieve economic objectives. To avoid embarrassment and punishment, provincial authorities tamper with data (inflate the figures). Recently, China’s Liaoning province confessed that it tempered with economic figures. The book-cooking was an attempt to avoid embarrassment, and as per reports, Liaoning inflated GDP figures around 20%, as it was the only province that fell into recession in 2016. However, the confessional report reveals that the province was inflating figures for 2011 and it continued Cooking the books until the year 2016 [10].
This development is unique, as provincial authority, of Liaoning province, admitted itself that it was tampering with the figures. This development contradicts the claim, to an extent, that the central authorities, in China, deliberately tamper with the figures. It may be true to some extent; however, it is not entirely true. However, this suggests that there must be several other provinces, which may be tempered with the figures. Also, it is hard to rule out that such fudging of figures or tampering with the statistics went on without the central authorities ever noticing it.
China is a very controlled state, which means that central authority is very authoritative and interfering. It is hard to conjecture that in a country like China, provincial authorities tampered with the official economic data, without consent, passive or active, of central authorities. This madness seems to have a method, which is quite apparent from the study of this phenomenon.
The rationale for fudged figures (objective)
From the systematic scrutiny of the literature and evidence, we learn that there is a couple of the rationale behind the fudging of figures or tampering of data. The foremost reason is that inflated figures serve political and economic agenda and objectives. For instance, inflated figures increase the confidence of local and international investors in the economy, which increase the size of investment in the economy. When investment increases or swells in an economy, employment increases and with the employment consumption also increases. In developed economy’s consumption is considered an engine of growth and whenever an economy is in turmoil, the fiscal instrument is used to increase the employment rate; thus consumption. Therefore, investment has great importance, and investment is strongly affected by perception. If the perception of the investor is that economy is swelling or will swell, an investor invests in that economy. However, then if the prevailing perception is that economic growth or consumption will decline or is declining, then an investor usually refrains from investing in the economy during the particular period [11].
Therefore, the Chinese government has a very good reason to fudge the numbers or temper with the statistics. Also, as the Chinese government is secretive and very controlling, (China is not very transparent regarding its internal affairs); therefore, it is easy for China to temper with statistics and reports about the economy.
The other reason is pressure and the punishment. We have discovered, during this study, that Chinese central government set targets (economic) for provincial governments. It becomes almost imperative for provincial governments to meet these set economic targets. A provincial government, which fails to realize these objectives, is punished, in different manners, by central authorities. To avoid punishment, provincial governments sometimes tamper with economic data, as in the case of Liaoning province, which admitted that it inflated figures up to 20%. Economists assert that almost all Chinese provinces inflate economic data, to please central authorities. When the data, of almost all provinces, is inflated deliberately for political-economic reasons, the figures (accumulated at the federal level) construct a slightly different and unreal economic picture.
However, it is also a fact that the difference is not huge and whatever the difference is, it is adjusted or corrected by international institutions, such as the World Bank, IMF, and others. It suggests that data is tempered to influence perceptions within the country. The international investors consider data, which international financial institutions provide [12].
As per some political-economists, China temper with economic data (inflate economic figures) to give the impression that China’s political-economic system is robust and it can produce extraordinary results. China’s political-economic system is unusual, and it is one of the few political-economic systems of the world, which is based on Marxian concepts. Therefore, China tempers figure to construct such picture, which may portray superiority of Chinese political-economic system.
How much flawed China’s official Economic Data is?
It has been well established that China inflates economic data for various reasons. However, the question is that what is the size of inflation or scale or tempering? There is not conclusive evidence, which may aid us in answering this question; however, the case of Loaning province provides us essential information to answer this query appropriately. We can use the confessional report or the admission, about the tempering of data, to conjecture the scale of tempering or inflating of economic data.
According to some reports, local governments inflated fiscal income up to 23%, which is extraordinarily high. Such tampering of figures is not possible in highly developed and focused regions of the country; however, in far-flung semi-autonomous regions, where the grip of the central government is not so strong, such tampering of figures is possible.
We presume that in provinces like Liaoning, figures may inflate upt0 20%; however, in developed and focused regions, such as the port cities of Western China, the inflating of data would not exceed the 2 % figure. Even the inflating of economic figures, by 2%, construct a very different picture, especially at the macro or national level. For instance, in 2016, GDP growth, of the United States, was around 1.6%, whereas China claimed that its GDP grew at a 6.7 % rate. However, Western economic institutions assert that China’s economy grew at 4% (plus) rate. Some firms/experts even contest the estimate that Chinese economy expanded at a 4 % rate. These firms/experts claim that GDP growth, of China in the year 2016, was around 3.5%.[13]
China’s National Bureau of Statistics is responsible for collecting and presenting economy related data. However, it is widely believed that the institution acts political messaging unit. Also, NBS only provides aggregated data, not its components. For this particular reason, it becomes very difficult to investigate or examine economic data, which is presented by China through its institutions, such as the National Bureau of Statistics.
As the system of information and projections are improving, it is becoming increasingly more difficult for economies and institutions to temper with the numbers. For instance, when China’s National Bureau of Statistics provided the figure of almost 7% growth in the year 2016, economists and economy related firms/organizations questioned the numbers and asserted that these numbers were fudged. Some of the firms used their enhanced techniques to conjecture China’s actual GDP growth in the year 2016. However, they also found it difficult as China did not provide components of GDP. As per Donald Straszheim, who heads China Research at Evercore ISI, “If you don’t have the components, how can you have a total? And if you have the components, which would add to the total, why are they not publicly available?” It strongly suggests that fake data is produced at the national level and state is responsible for producing such data [14].
Need For an Independent Institution to Provide Accurate Statistics
Economic transparency is essential for several reasons. The foremost reason is that it aids to investors in making decisions that are more informed. When economies produce apocryphal data to lure investment, such investments create complications for the economy in the long run. When such complications amalgamate at the global level, they produce an economic crisis, such as sub-prime mortgage crisis.
Therefore, it is essential that economic systems must be transparent and economy related figures must be accurate. It is possible only when states allow independent organizations to gather evidence or data about the economy. However, it is easier said than done, as the economy is also a political subject and therefore, economy related data is a sensitive subject.
It is also a fact that it is becoming increasingly difficult for economies to produce fake data. It is because means of information have improved and such techniques (software) have been developed that facilitate firms/organization/institutions in estimating economic performance, such as GDP growth, with great accuracy. For instance, international independent economic institutions quite precisely estimated economic growth of China, in the year 2016. The preciseness of estimation, primarily depends upon the size and quality of information [15].
Conclusion
In the end, it is evident that the economy has massive relevance and importance of a state. When the economy is healthy, the state can perform complex operations with great ease. Also, healthy economy enables states in realizing their objectives. Furthermore, healthy economy suggests that governance is good and the economic system is potent, which can produce desired economic results. For this particular reason, sometimes governments or regimes tamper with economic data. The tempering with economic data serves both political and economic purposes. In case of China, the inflating of economic data pacifies local political dissidence (to an extent) and lures investment in a country. China also uses these figures for subtle propaganda at the global level.
From the study, we also learn that fudging of data occurs at both provincial and national levels. However, central authorities in China discourage fudging of data at the provincial level, as it affects federation’s capacity and ability to precisely project economic outcomes. Therefore, China punished provincial authorities of Liaoning province for inflating economic data.
Some reports also suggest that economic data, which China publishes quarterly and annually, is getting more accurate. There could be several reasons for such development. One of the reasons could be that China has gradually realized that its official figures are discarded or not believed by international financial institutions and investors. Therefore, this entire exercise of tampering with economic data is futile. Furthermore, it reduces the credibility of Chinese financial institutions. However, China would continue to produce tempered evidence/statistics, for a long period, as it serves political purposes of the Chinese Communist Party.
Bibliography
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[11] Cette, Gilbert, Michel Fouquin, and Hans Werner Sinn. Divergences in Productivity Between Europe and the United States: Measuring and Explaining Productivity Gaps Between Developed Countries. Edward Elgar Publishing, 2007.
[12] Hornby, Lucy, Archie Zhang, and Jane Pong. “China fake data mask economic rebound.” The Financial Time. January 16, 2018. Accessed April 11, 2018. https://www.ft.com/content/a9889330-f51c-11e7-88f7-5465a6ce1a00
[13] Rosenfeld, Everett. “What is China’s actual GDP? Experts weigh in.” CNBC. January 19, 2016. Accessed April 11, 2018. https://www.cnbc.com/2016/01/19/what-is-chinas-actual-gdp-experts-weigh-in.html
[14] Rosenfeld, Everett. “What is China’s actual GDP? Experts weigh in.” CNBC. January 19, 2016. Accessed April 11, 2018. https://www.cnbc.com/2016/01/19/what-is-chinas-actual-gdp-experts-weigh-in.html
[15] Hornby, Lucy, Archie Zhang, and Jane Pong. “China fake data mask economic rebound.” The Financial Time. January 16, 2018. Accessed April 11, 2018. https://www.ft.com/content/a9889330-f51c-11e7-88f7-5465a6ce1a00
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