Is China Fudging Its GDP Figures? Evidence from Trading Partner Data

John G. Fernald, Eric Hsu, and Mark M. Spiegel in this FRBSF paper:

We propose using imports, measured as reported exports of trading partners, as an alternative benchmark to gauge the accuracy of alternative Chinese indicators (including GDP) of fluctuations in economic activity. Externally-reported imports are likely to be relatively well measured, as well as free from domestic manipulation. Using principal components, we derive activity indices from a wide range of indicators and examine their fit to (trading-partner reported) imports. We choose a preferred index of eight non-GDP indicators (which we call the China Cyclical Activity Tracker, or C-CAT). Comparison with that index and others indicate that Chinese statistics have broadly become more reliable in measuring cyclical fluctuations over time. However, GDP adds little information relative to combinations of other indicators. Moreover, since 2013, Chinese GDP growth has shown little volatility around a gradually slowing trend. Other measures, including the C-CAT and imports, do not show this reduction in volatility. Since 2017, the C-CAT slowed from well above trend to close to trend. As of mid- 2019, it was giving the same cyclical signal as GDP.

Why imports?

The challenge in assessing the reliability of different economic indicators is that we need a benchmark that is highly correlated with true activity but is not, itself, subject to manipulation.

In this section, we document that a country’s imports fit that bill: Import growth moves closely with GDP growth for countries with relatively reliable statistical systems. Why would we expect imports to be one of the best measured components of the national accounts?

First, the number of importers (and import locations) is typically modest, which makes measurement more manageable. Second, countries have an incentive to measure imports accurately for tariff purposes. Third, data on imports are available from external sources, reported as trading partner’s bilateral exports to the country in question. 

In countries with less-advanced statistical systems, we would expect the relationship between imports and measured GDP to deteriorate simply because measured GDP becomes less accurate.

The reduced accuracy of measured GDP should then reduce its correlation with imports. In contrast, for the reasons noted above (including the external verification), there is little reason to think that the correlation between imports and true economic activity deteriorates.



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