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How China Cooks Its Books

It's an open secret that China has doctored its economic and financial statistics since the time of Mao. But could it all go south now?

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In February, local Chinese Labor Ministry officials came to "help" with massive layoffs at an electronics factory in Guangdong province, China. The owner of the factory felt nervous having government officials there, but kept his mouth shut. Who was he to complain that the officials were breaking the law by interfering with the firings, he added. They were the law! And they ordered him to offer his workers what seemed like a pretty good deal: Accept the layoff and receive the legal severance package, or "resign" and get an even larger upfront payment.

"I would estimate around 70 percent of workers took the resignation deal. This is happening all over Guangdong," the factory owner said. "I help the Department of Labor, and they'll help me later on down the line."

Such open-secret programs, writ large, help China manipulate its unemployment rate, because workers who "resign" don't count toward that number. The government estimates that roughly 20 million migrant factory workers have lost their jobs since the downturn started. But, with "resignations" included, the number is likely closer to 40 million or 50 million, according to estimates made by Yiping Huang, chief Asia economist for Citigroup. That is the same size as Germany's entire work force. China similarly distorts everything from its GDP to retail sales figures to production activity. This sort of number-padding isn't just unethical, it's also dangerous: The push to develop rosy economic data could actually lead China's economy over the cliff.

Western media outlets often portray Chinese book-cooking as part and parcel of a monolithic central government and omnipotent Beijing bureaucrats. But the problem is manifold, a product of centralized government as well as decentralized officials.

Pressure to distort or fudge statistics likely comes from up high -- and it's intense. "China announces its annual objective of GDP growth rate each year. In Chinese culture, the government has to reach the objective; otherwise, they will 'lose face,'" said Gary Liu, deputy director of the China Europe International Business School's Lujiazui International Financial Research Center. "For instance, the government announced that it wanted to ensure a GDP growth rate of 8 percent in 2009, and it has become the priority for government officials to meet that objective."

But local and provincial governmental officials are the ones who actually fiddle with the numbers. They retain considerable autonomy and power, and have a self-interested reason to manipulate economic statistics. When they reach or exceed the central government's economic goals, they get rewarded with better jobs or more money. "The higher [their] GDP [figures], the higher the chance will be for local officials to get promoted," explained Liu.

Such statistical creativity is nothing new in China. In 1958, Chairman Mao proclaimed that China would surpass Britain in steel production within 15 years. He mobilized villages throughout China to establish backyard steel furnaces, where in a futile attempt to reach outrageous production goals, villagers could melt down pots and pans and even burn their own furniture for furnace fuel. This effort produced worthless pig iron and diverted enough labor away from agriculture to be a main driver in the devastating famine of the Great Leap Forward.

http://www.foreignpolicy.com/articles/2009/09/03/how_china_cooks_its_books?page=0,0


Added: Oct-14-2009 Occurred On: Oct-13-2009
By: Jattdadanda
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Tags: How, China, Cooks, Its, Books, economy
Location: Livingston, New Jersey, United States (load item map)
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  • I propose a repeal of NAFTA and a new 100% tarriff on ALL foreign products entering this country. They can get their $1.00 for their trinkets, only we will sell them for $2.00, therby allowing US mfg. a better shot at selling their products to Americans. Time to start getting this economy/manufactuing going in this country.

    Stop buying foreign products and continue the regression of the Chinese economy.

    Invest in America!!

    Posted Oct-14-2009 By 

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    • Oddly enough, this economic crash might actually accomplish that. The devaluing of the US dollar means imports are going to rise dramatically in price making foreign labor and products much less competitive. It could mean that we as a nation bring back jobs to the US and rely more on internal production than external imports.

      Yes, we'll pay more for everything, but thats what tariffs would do anyway right? The global equalization in comparative economic strength could actually be a hidden More..

      Posted Oct-14-2009 By 

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  • What if civil war happened in China?

    Posted Oct-14-2009 By 

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    • Hopefully they kill themselves.

      Posted Oct-15-2009 By 

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    • wiki 'taiping rebellion' second most destructive war in history with over 600 cities wiped off the map and over 25 million people killed (8 million more than the whole of WW1). all because one man thought himself to be the younger brother of jesus christ.

      when shit happens in china, it does so in a big way.

      Posted Nov-9-2009 By 

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  • by sending all our heavy industry, factories, manufacturing plants etc... to those bastards we put the dagger in our own heart. what kind of stupid morons ever thought it was a good idea to outsource so much to our enemies and even other "developing" countries while gutting our own economy.

    screw globalism, destroy the zog and end the fed!

    Posted Oct-14-2009 By 

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    • I own a manufacturing business in pacific northwest, Its sickening how much time i spend with my lawyer fighting with fire authority, city planning, puget sound air quality agency, etc etc, if it made economic sense i would have moved my company over seas long ago.

      Posted Oct-18-2009 By 

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  • China, the next sink hole.

    Posted Oct-15-2009 By 

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  • his chain fell off

    Posted Oct-14-2009 By 

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  • Is this just China?

    Posted Oct-14-2009 By 

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