An Economic Miracle or Economic Myth: Looking at Chinese GDP Figures

                                                             By: Marco Dorazio 

Since 1989, China has averaged a GDP growth rate of about 9% per year. However, in 2023, this figure is predicted to be right under 5% at 4.9% YoY GDP growth. This is a drop-off, a steady one; China’s annual growth rate has been shrinking at a near-linear rate with a correlation coefficient per year of growth at -0.9912, note that -1 would be a perfect correlation. This fact shows how consistently and predictably China’s economic growth has been dropping for more than a decade now. In fact, its slowing growth is being further exacerbated by a plethora of issues, ranging from disturbingly high youth unemployment, low birth rates, drops in arable land, drops in consumer spending, drops in investments into infrastructure and housing, a growing real estate bubble which has already sent two mega firms into crisis. This may all seem bad, but newer research from newer technologies has shown an even deeper crisis. This poor GDP reporting spans back to the leaked 2007 cable. 

In 2007, Li Keqiang was serving as the Communist Party Secretary of Liaoning Province. Li Keqiang would later on become Premier of the State Council of the People’s Republic of China. In 2010, WikiLeaks published a series of leaks including that of a U.S diplomatic cable between Li Keqiang and then U.S. Ambassador to China, Clark Randt.  Li importantly described the Chinese GDP figures as “man-made” and therefore unreliable. He offered that these numbers were often used for political purposes and do not accurately reflect the true state of the economy. He went on to explain that he looked at three other indicators to get a sense of where the economy was: Electricity Consumption, Rail Cargo Volume, and Bank Lending. Li was skeptical because research has proven that local officials inflate GDP figures to present a more favorable picture of their regions, and their personal promotions and evaluations are often tied to their economic performance. Two important studies have shown this, one titled “Perfecting China, Inc.: The 13th Five-Year Plan.” Secondly, “The Distortionary Effects of Incentives in Government: Evidence from China’s ‘Death Ceiling’ Program,” by Yongxiang Wang. But what if there was an even better way to look at economic figures, much like what Li Keqiang had suggested, after all in the decade since his comments the economic and technological status of China has changed, and so has his proposed Index, which has been used by firms in the US since 2007.

 One new factor to look at which has become increasingly popular is Night-time lights data or (NTL). This data is taken from satellite imagery and has been shown to have a strong positive correlation to GDP, according to the IMF and World Bank. Recently, multiple studies have been done recently using this new technology to cross-check GDP figures against a number of different data points. At least four major studies have been conducted proving that NTL data is indeed a reliable and good indicator of human well-being, economic activity, and urbanization. These studies are the following:

"A Real‐Time, In‐Situ, Autonomous System for Monitoring and Validating Satellite Estimates of Gross Primary Productivity" by Chen et al.

"Night-time light data: A good proxy measure for economic activity?" by Li et al.:

"Reliability of NPP-VIIRS Nighttime Light Data for Estimating Economic Activity in China: A Comparison with DMSP-OLS Data" by Zhang et al.

"Can Night-Time Light Data Identify Typologies of Urbanization? A Global Assessment of Successes and Failures" by Gollin et al.

Studies have claimed for multiple years now that China is overestimating its GDP by 10%+. The first study came out back in 2001 by Thomas Rawski, “What is happening to China’s GDP statistics?” He analyzed discrepancies between the growth rates in the 1990s and early 2000s. He specifically noted issues between the rapid GDP growth reported by China, and other indicators like energy consumption, which did not show this growth (energy consumption is part of the Li Keqiang index). In more recent years studies like “A Forensic Examination of China’s National Accounts,” have shown that from 2008 to at least 2016, China was overreporting GDP on a local level by 1-2% a year and in more recent years by 2-3%. But even more recently, Luis R. Martinez, published a paper titled “How Much Should We Trust the Dictator’s GDP Growth Estimates?” In it, he found that autocracies, including China, overstate yearly GDP growth by approximately 35%. This was after accounting for a number of factors. In the same vein, China’s GDP is the only country in history to have sustained such minimal changes in GDP variation over such a long period of time, leading to the conclusion that something must be up, according to Logan Wright at the Rhodium Group, a research firm in Washington, D.C. GDP is a massive political factor for the legitimacy of the CCP, without it things could go downhill. Another issue with Chinese GDP figures is that the government often sets GDP targets beforehand, which causes officials to borrow massive amounts of money to hit this growth target, even though this money does not actually contribute to the economy in a physical or economic way. China is hitting a very significant structural slowdown, which started back in 2018 when a weakness in credit growth showed up. All of these hypotheses are even further backed up by the news that a number of local officials were punished on May 27, 2022, for faking economic data. The truth is, this isn’t a one-time occurrence and chances are this is happening on a much larger and offensive scale than is commonly believed by economists and governments across the world.

An example of what NTL data might look like