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China ‘fraudulently’ adds $1 trillion to economy data
LAKSHMAN MENON  London | 17th Aug 2013

hina has probably "willfully" and "fraudulently" inflated the size of its economy by $1 trillion, a new paper has claimed. The findings, which have been reported by The Times, are described by their author as "conservative". The findings also assert that the manipulation of inflation and GDP statistics has probably been going on for more than a decade.

The Times reports that the new study, by Peking University's Professor Christopher Balding, "lead a renewed onslaught of scepticism over official Chinese data and what many believe is an ingrained culture of manipulation". The professor told the newspaper that the $1 trillion calculation "is merely the opening bid in a line of research that may ultimately reveal even worse distortions". In further comments unlikely to endear him to the Chinese government, the professor added that it would not be surprising if China turned out not to be the world's second biggest economy after all.

"Given how easy it was to spot obvious statistical manipulation, it is likely that there is plenty of less obvious fraud and that even larger revisions may be required", The Times continues.

The focus of Professor Balding's research is the manner in which the Chinese government has systematically and consistently manipulated inflation data since China's economic boom took off in 2000. The professor argues that inflation numbers have been subjected to "significant and systematic irregularities" resulting in ever widening discrepancies between the rate of inflation-adjusted GDP growth and total real GDP. "Over the past 11 years, those discrepancies have widened to produce an 8-12% — or $1 trillion — overstatement of China's real GDP", The Times reports.

The professor claims that the two main problems with the inflation data are, firstly, that the base data on housing prices is subject to "gross and obvious manipulation". The second is that the calculation of inflation "is weighted in a way that dimly reflects the reality of 21st-century China".

The professor is aware that his findings are likely to provoke the Chinese government into a fury: "I suspect that there are going to be some officials who will want to talk to me about this paper," he told The Times, "I keep asking myself, does the Government have a second set of books for the national economy — an non-manipulated version in a backroom somewhere. I don't think they do and I think that is the problem faced by anyone in charge of China. They do not have accurate data on the economy, yet they are using that inaccurate data to set policy".

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