After decades of unprecedented economic growth, the Chinese economy is finally slowing down. And new research suggests that this China slowdown may actually be more severe than reported by the Chinese government.

In a study featured in the Brookings Papers on Economic Activity, Wei Chen of the Chinese University of Hong Kong and others claim that the actual growth in China’s gross domestic product (GDP) between the years 2008 to 2016 maybe 1.7 percentage points lower than reported (10.3% as compared to the official 12%). They also show that the savings rate for 2016 was 7 percentage points lower than official figures (40% rather than 47%).

The authors argue that this over-reporting occurs because China’s national accounts are based on data collected by local governments.

Since local governments are rewarded for meeting growth and investment targets, they have an incentive to skew local statistics.

China’s National Bureau of Statistics (NBS) then adjusts the data provided by local governments to calculate gross domestic product at the national level.

The study provides revised estimates of local and national GDP by re-evaluating output of industrial, construction, wholesale and retail firms using data from value-added taxes.

They also use several local economic indicators that are less likely to be manipulated by local governments, such as satellite night lights, national tax revenue, electricity consumption, railway cargo flow, exports and imports to estimate local and aggregate gross domestic product.

The authors argue that local statistics increasingly misrepresent the true numbers after 2008, but there was no corresponding change in the adjustment made by the NBS.

Also read: A Forensic Examination of China’s National Accounts

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