Congenital Mythomania

Fake China data: was it just one province? 
Revelations Liaoning fabricated statistics raise questions over rest of rust belt 
By Lucy Hornby and Archie Zhang in Beijing and Jane Pong in Hong Kong

Sceptics about China’s economic statistics have taken a special pleasure in revelations of fake data in the north-eastern province of Liaoning dating at least to 2011.
Along with an officially reported contraction in its economy last year, they have given the impression that Liaoning’s economy is unusually troubled.
That impression may be unfair to Liaoning.
In 2007 when Li Keqiang was party secretary of Liaoning, he made waves when he declared China’s gross domestic product figures “man-made”. 
Last week, even Xi Jinping weighed in on Liaoning’s data-faking, telling the province’s delegation to China’s annual legislative meeting that “the practice must be stopped”.
But is Liaoning the only province to have doctored its statistics?
The map below shows the share of metals and mining (a category that includes crude oil output) in the nominal gross domestic product of Chinese provinces in 2011.
China stopped publishing this data in 2012, the same year the commodity cycle turned sour.

The FT examined four provinces that are more reliant than Liaoning on the coal, steel and oil industries.
Shanxi, Shaanxi and Inner Mongolia comprise China’s coal heartland; Liaoning and Hebei together account for almost one-third of China’s steel output. 
In regions where resources or steel dominate, the commodity cycle is more extreme.
Booms inflate the service sector, consumer spending and property prices; busts have an outsized effect on employment and government finances.
“China has a rust belt just like the US or UK,” says Andy Rothman, investment strategist at Matthews Asia. 
Below are coal, oil and steel prices since 2010.

These benchmarks were multiplied by each province’s reported output of coal, oil and steel, and charted against the reported growth in GDP.
Below is Liaoning.
Strangely, when it admitted to a contraction in 2016, steel, coal and oil were already recovering. 

The other provinces show a similar pattern in the three key industries.
Output values weakened in 2012, briefly recovered in the second half of 2013 and then took a deep dive.
Below is Hebei, home to one-quarter of Chinese steel production:

The worse period was the winter of 2015-2016, followed by a recovery in 2016, as seen below in Shaanxi...

and Inner Mongolia...

This pattern diverges from reported GDP figures, which show growth speeding up from early 2015. Below is Shanxi, the most mining-dependent of all Chinese provinces.
Metals and mining (mostly coal) made up 62 per cent of its industrial output in 2011 and 37 per cent of GDP.

Did Liaoning underperform last year, or were its reported data suddenly brought back in line with reality?
And what does that imply about the other rust-belt provinces?
“Liaoning is the most developed and diversified of the three north-eastern provinces, therefore it should have been performing better, not worse,” says Andrew Batson, economist at research group Gavekal Dragonomics.
In 2013 the Communist party pledged to implement a unified system for compiling provincial GDP. Rather than relying on provincial agencies to produce GDP figures in parallel with the national survey, the pledge called for the National Bureau of Statistics in Beijing to take charge of the process. The goal was to avoid the perennial problem of provincial GDPs summing up to a higher number than the national figure. 
NBS circulated a draft plan for the unified system in late 2014.
Ning Jizhe, director of NBS, told official media on Sunday that phase-in will begin in 2017 and be complete by 2020.
Observers must await the release of four years of corrected data from Liaoning — if indeed the true numbers are ever divulged — if they are to find out what really happened to northern China’s economy when the economic books were being cooked.

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.