06/27/2017, 14.04
CHINA
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As state companies cook the books, official statistics on growth lose their credibility

Books are manipulated in cahoots with local governments. Promotions are linked to the growth of local industrial areas. The Chinese government wants to correct the situation, but penalties are too lenient. Meanwhile international agencies cast doubt on the credibility of official statistics and lower China’s rating.

Beijing (AsiaNews/Agencies) – Many Chinese state-owned companies have cooked the books in cahoots with local authorities.

An official audit report published on Friday said that 18 of the 20 state-owned firms that were audited have in recent years inflated their revenues by more than 200 billion yuan (US billion) and boosted their profits by 20 billion yuan with faked business and manipulated books.

The companies audited include China National Petroleum Corporation, China State Shipbuilding Corporation and Sinochem Group.

The report also found that China’s local government debt was increasing too fast in some parts of the country, giving an implicit nod to Moody’s decision in May to downgrade China’s sovereign rating for the first time since 1989.

Beijing has sought to cut overcapacity in heavy industry and lower the overall debt burden to keep growth at an average rate of 6.5 per cent until 2020. However, some of the mainland’s largest corporations have gone against the ruling Communist Party’s will over the past year.

Nine of the audited firms were still having trouble meeting government directives. For instance, China National Building Material, the nation’s largest cement producer, had failed to cut its capacity by six million tonnes as ordered, and had rented 1.39 million tonnes of capacity from other companies to expand production.

By the end of last year, three out of the 18 provinces being audited had illegally approved production of 12.59 million tonnes of coal and 1.33 million tonnes of steel. This flew in the face of official rhetoric about reducing coal and steel capacity by 290 million tonnes and 65 million tonnes respectively in 2016.

The amount of outstanding government debt in the 46 audited mainland provinces, cities and counties had increased by 87 per cent in less than three years.

However, when Moody’s downgraded China’s rating by one notch to A1 this May on the basis of insufficient reform to contain debt risks, the central government said the ratings agency overestimated the risks and underestimated Beijing’s ability to keep them under control.

China’s continuous better-than-expected GDP figures between 2012 and 2014 have prompted a wave of scepticism and criticism from economists and the media over the credibility of the country’s statistics.

Many international observers are now seeking to have more precise data about China's economic performance by looking at energy data or by analysing container traffic.

Chinese state media have been quick to defend the credibility of official figures, often arguing the transparency of the independent system for data collection, or citing the country’s subscription to the International Monetary Fund’s Special Data Dissemination Standard at the end of 2015.

Nevertheless, state-backed media have also reported several data-manipulation cases, including an investigation that uncovered rampant mass fabrication of figures two years ago in the northern provinces of Heilongjiang, Jilin, and Liaoning — where at least 20 per cent of the region’s fiscal revenues were exaggerated.

Last year, 39 companies in Hengshan county, central Hunan province fabricated a combined 4.4 billion-yuan (US$ 642 million) output whilst the real figure was only 580 million yuan.

Five companies in Changsha city exaggerated their output at a rate that is 80 times higher than the real figure. Many companies were still reporting output during production halts.

The governor of Liaoning province, the only area in China currently in recession, admitted that the economic figures from 2011 to 2014 were inflated.

Those implicated included government officials of all levels whose promotions were closely linked to higher economic growth under a policy of “taking economic development as the central task” — a core principle of China’s policy of reform and opening-up launched by Deng Xiaoping three decades ago.

Those directly benefiting from the fabrication of data have been city mayors, who could be promoted to be local party chiefs. 

Despite central government leaders, including President Xi Jinping and Premier Li Keqiang, having repeatedly vowed to punish data manipulators in recent years, local officials are still willing to cook the books as the risks involved seem quite acceptable.

The worst penalty for an individual involved in data manipulation is to have their Communist Party membership revoked. In serious cases, they could be placed on so-called probation within the party, but in less-serious cases, violators could receive a warning as punishment.

What is more, not only are growth data questionable, so are those on investment, unemployment and personal income, said the China International Capital Corporation (CICC).

The bank’s economists, led by Liang Hong, wrote that the fixed-asset investment (FAI) data compiled by the National Bureau of Statistics and local governments was likely inflated.

Likewise, with the rapid development of the service sector, there were more things not on the radar of China’s statistics authorities.

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