China’s Gross Domestic Product (GDP) is more than $1 trillion less than published because baseline Chinese economic data on housing is manipulated and unreliable, says Christopher Balding, a professor at China’s HSBC School of Business in Shenzhen.
Using data on consumer price inflation published by the National Bureau of Statistics China (NBSC) data, Balding came to his conclusion while attempting to reconcile the official data to third party data.
“The primary point of the paper is not simply to reveal more discrepancies in the Chinese economic data, which it does, but also to measure the impact of these fraudulent statistics on real economic activity,” Balding said on his website, Balding’s World.
“When you simply make economic data up, of course the numbers are always going to look good,” he remarked.
Balding shows how the official statistics assign manipulated housing data to reflect a lower rate of inflation. After conservatively correcting the official Chinese Consumer Price Index data for actual housing price inflation, consumer price inflation in China has been approximately 1 percent higher annually, he reported.
Incorporating this change in the Consumer Price Index into real GDP calculations reduces total actual GDP by a mid-range estimate of 8-12 percent or about $1 trillion in purchasing power parity (PPP) terms. This means, in simple terms, peoples’ money does not buy as much because of the hidden inflation.
The study reveals that, according to the NBSC, prices of urban private housing only increased 6 percent between 2000 and 2011, while rentals prices increased in excess of 50 percent during the same period. By classifying most Chinese households as private housing rather than rentals, NBSC assigns the significantly lower inflation rate to the majority of the population.
Additionally, the study says that according to third party data the supposed value of apartments in urban areas in China nearly tripled from the first quarter of 2000 to the first quarter of 2010.
Even though beginning in the year 2000, nearly two-thirds of Chinese households were in rural areas, the NSBC applied a straight 80/20 ratio of urban to rural private housing. This further skewed the accuracy of the final data, mis-weighting the rural population by nearly 50 percentage points.
Balding found that according to official data, the food component of China’s Consumer Price Index was responsible for 99 percent of inflation between 2003 and 2011, implying that literally the only prices to rise in China between 2003 and 2011 were food prices.
“Furthermore,” Balding writes, “you continue to add up all these little ways that the NBSC is fraudulently manipulating the data and you arrive at some pretty big numbers. As the saying goes, a trillion here and a trillion there, and pretty soon, you are talking some serious money.”