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China’s GDP growth slows to 7.5%? Or less?

July 24, 2013 Leave a comment

target

The number 7.5% is right in line with the target…and Mamta Babkar thinks that’s too good to be true.

Maybe.

But I doubt the real numbers are much different from the official figures. Here’s why: with reporting like this, you can only fudge the numbers for so long.

A hypothetical example:

Suppose you are an official reporting economic growth for XYZ Province in China. Let’s make it a reasonably large province…say, one with a big economy of around $815 billion.

Now suppose the economy really only grows by 6.5% to $868 billion. But you want to fudge the numbers and report growth of 7.5%, or a $876 billion economy. The actual/reported gap is $8 billion, not even noticeable in an economy of this size.

What happens next year? Suppose the target is again 7.5% but again you only get 6.5% growth. This time, you have to report a $942 billion economy, when the real size is only $924 billion. Now the actual/reported gap is $17 billion–twice as big relative to the actual economy size as the year before.

By the fifth year the gap would be  $53 billion, or five times as big relative to the first year “fudge.” 

In other words, since these numbers are compounding annually, you can’t just roll fake numbers forward. They snowball.

China’s political leaders may or may not be less honest with numbers than politicians of other countries–who’s to say?–but they certainly understand math better than the average journalist.

My guess is that the numbers are pretty close to correct, even if they’ve been “smoothed” a little.

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