BOFIT Viikkokatsaus / BOFIT Weekly 2018/03

A year ago, news of a long-running statistical fraud in the Liaoning province emerged. It was the tip of the iceberg apparently. Three weeks ago, officials in the Inner Mongolia Autonomous Region admitted they had artificially inflated their 2016 fiscal reporting. When corrected, the figure for industrial output was 40 % lower and regional tax revenues down by 26 %. Two weeks ago, the city of Tianjin announced that it had revised 2016 GDP figures for the Binhai New Area down by a third. This week, officials from Inner Mongolia's industrial city of Baotou, a relatively small city of 2.9 million, admitted to overstating fiscal revenue figures last year by about double.

Inner Mongolia accounted for about 3 % of China's officially reported economic output in 2016. The Binhai zone's contribution was just over 1 %. While the economic impact of these regions is marginal relative to the Chinese economy overall, there is a high probability that more statistical frauds will emerge at the local and provincial levels. Revelations of statistical fakery also reinforce scepticism about China's national GDP figures. The latest revision of the 2016 national GDP figure was just confirmed and the recent statistical frauds appear to have no impact on the growth rate.

Inner Mongolia's regional government, already stung by the false statistical reporting, this week confirmed that it had suspended work on Baotou's subway project, as well other infrastructure projects in the regional capital of Hohhot. High growth targets and lax monetary policy for years sustained gigantic, sometimes unprofitable, investment projects and added to regional government debt.