Chinese province’s GDP fall hints at extent of past exaggeration

Liaoning data blamed on fall in output and corrections to rosy historic numbers 
By Yuan Yang in Beijing

Shrinking economy: oil wells in Liaoning province
Economic output in China’s northeastern industrial province of Liaoning shrank by 23 per cent in nominal terms last year, according to official statistics — showing the extent to which officials had previously exaggerated performance in China’s struggling rust-belt.
The sudden drop in provincial gross domestic product is only partly due to a fall in the real economy — in inflation adjusted terms, GDP fell by 2.5 per cent according to the national statistics bureau. The main reason for the decline, analysts say, was officials’ attempts to undo the effects of previous over-reporting.
China’s problem of industrial overcapacity has led to factories defaulting on debt, cuts in output and the planned lay-off of millions of coal and steel workers, all of which have hurt Liaoning’s steel-dependent local economy.
Last April the province was the first in China to report a quarter of negative growth in seven years. Last month Liaoning’s governor admitted to state media that fiscal revenues in the province had been inflated by at least 20 per cent from 2011 to 2014. 
The official revelations gave credence to economists’ suspicion that China’s economic figures are manipulated by officials for political gain. 
Local governors are given growth targets to hit, although recently the government has tried to move towards a broader set of performance indicators.
Further evidence of data fabrication can be seen in Liaoning’s fixed-asset investment figures, which fell 64 per cent in 2016.
China International Capital Corporation, a partly state-owned investment bank, said the drop in investment raised doubts about previous years’ figures. 

“The sharp decline was not only a result of economic downturn but also reflected the correction of its previously inflated data,” wrote CICC last week.
“Liaoning have had stark issues with their data over the past few years. Does that mean other provinces do too? That's definitely the case — provincial GDP is always higher than national GDP,” said Jonas Short, head of China research at NSBO, an investment bank.
Li Keqiang, who was the top official in Liaoning from 2004 to 2007, once decried GDP data as “man-made” and therefore unreliable. 
Instead, he preferred three indicators of industrial activity: electricity consumption, railway cargo volume and loans extended by banks.
However, such indicators are less relevant to measuring China’s economic output now that the dominance of traditional industries is fading.
Some economists, however, believe China’s GDP figures now underestimate the true size of the economy.
The current method of calculating GDP relies on data from businesses that are large, state-owned and industrial.
This overlooks the growth of fast-growing private start-ups in the technology sector, according to economists who have calculated a “new economy index”.
China is due to revise the way it samples data from firms next year to take account of new sectors.