Beijing, October 4

As once-stellar growth rates start to dip, watchers of China’s mammoth economy worry that it could be worse than it looks because the official figures might not be telling the whole story. But amid mistrust of government numbers, economists are divided over what other measurements they can use.

Official growth figures last year were the slowest in nearly a quarter of a century, and dropped to seven per cent in the first half of this year — suspiciously close to government predictions.

However, there is an emerging consensus among economists that real growth in China is lower.

Official data is ‘mendacious’, said Willem Buiter, chief economist of Citigroup, who estimates the growth rate as ‘4.5 per cent or less’, according to Bloomberg News.

The median estimate proffered by 11 other economists consulted by Bloomberg was 6.3 per cent. Analysts have long noted the political nature of economic statistics in China — where the ruling Communist Party depends on growth for legitimacy.

“The importance of economic performance to local officials’ evaluations historically provided a strong incentive to provide a rosy picture to higher levels of government,” Goldman Sachs said in a report this month. That means that if you add up all the growth reported by the provinces, it regularly exceeds the national rate.

Figures are also published disconcertingly quickly. It took officials less than two weeks to unveil this year’s second quarter growth, compared with a month in the US.

The International Monetary Fund said in mid-September that China could ‘further improve’ the quality and the transparency of its data. France’s Finance Minister Michel Sapin said this month: “Nobody today believes with absolutely certainty that (the official figure) corresponds with reality.”

China’s expensive efforts to support diving stock markets and a sudden devaluation of the yuan this summer sparked fears that headline growth data is increasingly out of touch with reality. No less an authority than China’s Premier Li Keqiang has expressed doubts about accuracy of country’s GDP figures.

Leaked US diplomatic cables show that as top official in Liaoning province in 2007, he told  the then-US ambassador that such data was ‘man-made’ and thus unreliable.

When evaluating the economy, Li said he focused on only three indicators — electricity consumption, rail cargo volume, and the amount of loans issued, according to the confidential memo released by the WikiLeaks website in late 2010.

“All other figures, especially GDP statistics, are ‘for reference only,’ he said with a smile,” as per the cable.

And the three indicators that make up this ‘Li Keqiang Index’ reveal a bleak picture. Electricity consumption rose only one per cent from January to August, the slowest in 30 years, the official Xinhua news agency said. The key manufacturing sector has contracted for seven months, according to the independent Caixin Purchasing Managers’ Index (PMI).

China’s top economic planner, the National Development and Reform Commission, last week defended‘the credibility of seven per cent economic growth’.

In an apparent dig at fans of the Li index it said power use and rail freight are less reflective of overall economic activity given the ‘major changes China’s economic structure has undergone in recent years’.

The much less energy-intensive service industry was responsible for 49.5 per cent of GDP growth in the first half of 2015, whereas the contribution of heavy industry shrank drastically. Some analysts have also weighed in against the Li index. “Since the first half of 2012, China’s services sector has become the main driver of its economic growth,” said Nicholas Lardy of the Peterson Institute for International Economics in an analyst report.