Four Reasons Why You Shouldn’t Trust China’s GDP Data

5 min read


China’s economic growth in recent decades has been truly spectacular, with an average rate of more than 6.5%, and now it is one of the primary sources of global economic growth, despite the recent slowdown.

In recent years, however, experts have begun to question the reliability of China’s GDP statistics. The way China collects and processes the information is fundamentally different from that in the Western, and therefore we should take into consideration this fact when comparing the GDPs of China and other countries.

In essence, there are four reasons why Chinese statistics do not reflect the underlying economic activity

  • Deliberate fabrication by local governments —  fortunately, the National Bureau of Statistics endeavors to tackle this problem
  • Both productive and unproductive investments add up to GDP’s value, in spite of the fact that unproductive investments do not create valuable economic activity. In China, because of the government’s heavy involvement in the economy, trillions of dollars in wasted investments are counted in GDP
  • The Chinese government, due to the lack of appropriate mark-to-market mechanism, doesn’t write down bad debts (investments recognized as wasted)
  • China’s GDP is a measure of political intention, not economic activity

Below I am going to address these four issues at a deeper level and give supporting evidence for my arguments.

Local Governments to blame

One of the reasons behind overstated figures is local governments. China’s data is based on the information provided by local governments, and, because they are rewarded for the over-achievement of growth targets, they tend to fake data in order to gain promotion and other benefits.

As SCMP reports, “Chinese Premier Li Keqiang referred to China’s GDP figures as “man-made and therefore unreliable” in 2007 when he was Party Secretary of Liaoning Province. He called for the use of proxies such as electricity consumption, rail cargo volume and loan volume instead. “

For instance, in 2015, several Northeastern provinces of China admitted faking GDP growth figures, and later in 2017, two more provinces were found faking economic data. Inner Mongolia and Liaoning are among the provinces that most overestimate their local GDP, inflated by 20% and 17% respectively.

Since 2003, the NBS (National Bureau of Statistics) has produced a GDP figure that is lower than aggregate provincial data after further examination. Even though China’s National Bureau of Statistics usually adjusts skewed data, research by Brookings Institution suggest that NBS’s changes have become insufficient to accurately reflect the reality in recent years.

The study found that official data has overstated the real GDP growth by more than 2% each year since 2008.


In words of Brookings experts, “Our estimates suggest that the extent by which local governments exaggerate local GDP accelerated after 2008, but the magnitude of the adjustment by the NBS did not change in tandem.”

After decades of adjusting local GDP figures downward and because of the unreliability of regional data, the NBS finally decided to assume control of regional data collection beginning from 2019.

Discrepancy Between Underlying Economic Activity And Gdp Figures

There are three ways to calculate a country’s GDP, and all methods measure, to put it simply, the value of all goods and services produced within the borders of a particular country over a certain period. The most widely used formula for GDP is

GDP = C + G + I + NX, or (consumption + government spending + investment + net exports)

We see from above that investment is one of the four components of GDP. There is, however, one problem with factoring investment when counting GDP — however illogical it may seem, “The amount by which the productive investment boosts the GDP calculation is the same as the amount by which the nonproductive investment boosts the GDP calculation.”

Let us imagine two companies: A and B. Company A builds a city bridge which accelerates economic activity, because, say, a local factory now can move materials necessary for the production faster and much more efficiently, and therefore Company A spends on this bridge $1,000,000.

On the other hand, due to dismal management, Company B builds a bridge to the nowhere — this bridge does not serve any purpose and it neither increases economic activity nor contributes to economic growth. However, just like company A, it spent $1,000,000 on this bridge, and therefore the GDP of the country where the two companies built the bridges will increase by $2,000,000, even though only $1,000,000 have been allocated productively.

Both productive and unproductive investments are included in GDP, despite the fact that only productive investments, like the bridge build by Company A, create economic value.

The problem of unproductive investments in China is more serious than in Western capitalist countries because a vast amount of investments in unproductive activities that are added up to the country’s GDP does not increase the amount of wealth produced in the economy and therefore does not reflect the underlying economic activity. According to some estimates, China has wasted $6.9 trillion in unproductive investments from 2009 to 2014, which is almost half of the overall amount of its investments over this period.

GDP cannot distinguish between the activity that increases a country’s wealth and activity that does not.

China Doesn’t Write Down Bad Investments

Another issue, peculiar to China and other economies with a high level of government involvement, is that GDP calculation is not adjusted to the changes in economic activity. In a capitalist country, for instance, the United States, if the aforementioned failing Company B, which wasted $1,000,000 on the bridge to the nowhere, recognizes that this was an unproductive investment, then this asset, worth $1,000,000, will be written down to zero and the net profits of company B will be reduced by this sum. This, in turn, reduces GDP by $1,000,000.

As a result, the economy’s reported GDP is in tandem with the real value created. However, in an economy in which there is no such mark-to-market mechanism, reported GDP is higher by the amount of wasted investment.

Imagine two countries: the US and China. In the US, Company B writes down unproductive investment, and therefore GDP reflects the reality. In China, however, because all of the loans are guaranteed by the government, there is no mark-to-market mechanism, and therefore, as professor of finance and economics and Peking University, Michael Pettis, argues, China’s GDP is overstated by the value of bad investments that are not written down.

Chinese government deliberately perpetuates the existence of so-called “zombie” companies and grants loss-making companies more loans, instead of writing down bad debts. This is, by the way, the reason why China has $34 trillion worth of debt (266% of its GDP)


As M. Pettis then writes, “More generally, in economies that do not recognize investment misallocation, and that do not write down overvalued assets, reported GDP will be higher than it otherwise would be, as will the reported value of total assets, due to the failure to write down unproductive investments, or bad debts. In other words, the Chinese GDP is overstated every year by the amount of wasted investment that is not written down.”

China’s GDP, instead of reflecting the real performance o

China’s Gdp Is Based On Input Data

f the economy by calculating the economic output is based on input, that is, the target set by the central government in Beijing. It is clear that input-based approach will never truly represent the size of the economy — it is almost impossible to achieve economic growth that equals the target.

Local governments, because they are expected to achieve growth targets, are forced to borrow and then they invest this money, regardless of whether these investments really contribute to growth. thereby increasing GDP.

But achieving the target reveals nothing about real economic activity. Once GDP growth becomes a systems input, rather than output, it does not indicate anything about the economy’s performance.


Analysts need to use metrics other than GDP order to accurately measure the health of the Chinese economy, like tax revenue growth, retail sales, or productivity. Or we should adjust China’s GDP by subtracting the amount of bad debt that is not written down.

According to Michael Pettis, China’s real GDP growth is half the reported number, that is, it is around 3–4%. Brookings Institution estimated that GDP growth is about 4%.

This puts the current nominal GDP of China at around $10–11 trillion, far less than reported figure of $14 trillion and still far behind the US GDP of $20 trillion.

Beijing should embrace a more responsible approach towards the way it measures the economic activity — in our day and age, reliability is becoming increasingly important. Nevertheless, in the future, China will inevitably be forced to write down bad debt and implement changes to its data-processing system and structural reforms in order to achieve genuine economic growth — not the one fueled by debt, but by domestic consumption and a free-market economy.

Sukhayl Niyazov Independent author.

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