Recent data revisions by several northeastern provinces raise new questions about the reliability of China’s economic data. Individually, the data revisions speak to local malfeasance and distorted incentives. Those come as no surprise to us—or to Beijing. The central government has long had processes in place to correct for local distortions when producing data about the national economy.
Nonetheless, the scope and scale of changes announced do shift our understanding of the shape of China’s economic cycle over the past four years. They suggest that industrial activity was somewhat slower in 2014/2015, particularly in China’s northeastern rustbelt, that the size of the national economy is marginally smaller today, and that fiscal conditions in some provinces are even bleaker than currently appreciated.
They also tell us something important about China’s political environment: local governments are currently crying for help in the face of those dire fiscal conditions. We expect to see more revelations of fake data from previous years as deleveraging efforts tighten credit, local budgets stretch, and Beijing pursues efforts to improve its system of national accounts.
