Has China Been the Enron of National Economic Statistics?

business_ethics_highlights_2 Incentives to misrepresent economic performance aren’t limited to publicly-traded, for-profit companies. Here, the director of the National Bureau of Statistics of China is under investigation for his possible role in shaping China’s economic statistics such that they tell investors and the public a story favorable to China’s economic and political interests, rather than a story truthful about China’s economic performance. Although it is unclear both whether China’s economic statistics are manipulated and, if they are, who is responsible for the manipulation, the National Bureau of Statistics of China may be a case study in poor institutional design—due, in part, to its multi-stakeholder mandate. As the linked story relates, “The statistics bureau has a variety of responsibilities that are hard to balance even in the best of times. The bureau is supposed to provide China’s leaders with an unvarnished assessment of the country’s economic strengths and weaknesses, even while reassuring the public about growth and maintaining consumer confidence. It is also supposed to release enough detailed and accurate information for investors and corporate leaders to make sound decisions about economic and financial prospects.” Put differently, the National Bureau of Statistics of China is charged to be both a reporter of China’s economic performance and a marketer of China’s economic attractiveness. The more thoroughly and transparently it performs one of those tasks, the less it can perform effectively the other. “Balancing” these conflicting mandates appears to mean fulfilling neither.  >>>

LINK: Inquiry in China Adds to Doubt Over Reliability of Its Economic Data (by KEITH BRADSHER for New York Times)

The veracity of China’s economic data has been increasingly questioned as the slowing pace of the country’s growth has startled the world. And a new investigation into the official who oversees the numbers is unlikely to inspire confidence.

It is unclear whether the investigation into the agency’s head, Wang Baoan, who became the director of the National Bureau of Statistics of China last April, is related to his current role or to his previous one as vice minister of finance. The commission did not release any further details about the inquiry.

Few doubt that China has grown enormously over the past three decades. But economists, bankers and analysts who study the numbers believe that the bureau smooths data, underestimating growth during economic booms and overestimating it during downturns.

That can make it hard to discern what’s really happening in the economy. Among other problems, it has a glut of old-line factories that make products like steel, glass and cement. That industrial overcapacity stems from years of debt-financed investment in industries that now show little sign that they can repay those loans.

Beijing is trying to rebalance its economy to focus more on consumer spending and services. But concerns about the pace of change play into the worries about the data.

What do you think?

RELATED: Joseph Heath and Wayne Norman, “Stakeholder Theory, Corporate Governance and Public Management: What can the History of State-Run Enterprises Teach us in the Post-Enron era?

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