China claims that it has the largest economy in the world. Possibly. But an alarming lack of transparency casts doubts on their claim to that title.
Over two centuries ago, Scottish economist Adam Smith wrote that “The Wealth of Nations” is the sum total of the value of all the goods and services an economy creates, not how much money the nation has. This idea exists with us today as gross national product.
Though perhaps imperfect, GDP calculations for western capitalist countries are transparent. The individual components, the economic data and its sources, and the calculations are all public and verifiable.
China, in contrast, offers only one number: the total GDP. No components. No data or sources. No formula or calculations. Because of this, investors have little to sift through when attempting to corroborate government statistics.
Until this is corrected, and China’s economy is truly transparent, the nation’s financial stability and international standing will suffer.
Nowhere are reforms more necessary and the lack of transparency more evident than in reports from China’s National Bureau of Statistics (NBS). Earlier this week this government-run agency claimed that the Chinese economy grew by 6.9 percent in 2015.
It’s a commendable figure. Too bad very few observers think it’s accurate.
It’s widely believed that the NBS is not exactly forthcoming when it comes to reporting economic progress or lack thereof. And as the Chinese economy slows, there is ample reason to believe that Beijing is doing some creative bookkeeping for the sake of stability.
The problem is echoed in the nation’s provinces, which do their own fudging. Back in 2013, for example, the NBS revealed that Guangdong, China’s most populous province, had vastly overstated its own GDP growth.
In a moment of frankness, even Li Keqiang, who is now the nation’s prime minister, observed that local economic numbers were unreliable and “man-made.”
This has resulted in great amount of uncertainty among investors trying to ascertain the actual health of China’s economy. There are, however, ways of getting closer to the truth.
Many investors scrutinize exports, the prices of commodities such as oil and copper, and watch rail traffic, as well as electricity and coal consumption to glean a clearer picture, which indicates that China’s economy is growing at a significantly slower rate than 6.9 percent.
But none of this should be necessary. Transparency may be a characteristic of western capitalism, and China may not feel obligated to include this in its economic reforms. But if it is to be among the world’ leading economies, Beijing should follow some basic market rules, starting with providing investors a transparent view of its finances.
An important starting point would be at GDP. Instead of only providing a broad view of the statistic, China must also provide the details that are driving its supposed growth. If provided this, investors would no longer be left in the dark.
America’s economic reporting may be imperfect, but by studying retail sales and other available statistics, we are at least able to verify the government’s numbers. This type of transparency would allow those investing in China to do the same.
“The Wealth of Nations,” which has been available in Chinese since 1902, gave the world a new way of measuring prosperity.
It’s good that China now uses this statistic, the GDP, to provide the rest of the world a picture of its growth. But given China’s opaque form of reporting, this picture is incomplete.
Until this changes, China’s economy will neither be the world’s leader nor truly free.
Originally Posted on NewsMax.com
Categorised in: News