This economist demolished China’s official GDP numbers and found a $1 trillion hole

Christopher Balding, Associate Professor at the Peking University HSBC Business School

Christopher Balding ran his own economic test on China’s GDP and found that the official numbers amount to a whole lot of window dressing.

Balding, an associate professor at Peking University, says that consumer price index is 1% higher which lowers real GDP by a mid-range estimate of 8-12% and reduces real GDP by more than $1 trillion.

At best the economic data is flawed but appears to be politically manipulated, writes Balding in his report released on Wednesday. Balding works at the university’s HSBC School of Business in Shenzhen, China.

Getting inflation wrong is a problem since it “. . . will impact many other areas of economic and financial data leading to large disparities over time.”

Balding used housing data to tease out the discrepancies, the single biggest item in many national price baskets, which will have “. . . will have a disproportionate impact on the calculation of real GDP relative to other items.”

Three problems are apparent in official NBSC data on inflation.

First, the base data on housing price inflation is manipulated. According to the NBSC, urban private housing occupants enjoyed a total price increase of only 6% between 2000 and 2011. Second, while renters faced cumulative price increases in excess of 50% during the same period, the NBSC classifies most Chinese households has private housing occupants making them subject to the significantly lower inflation rate. Third, despite beginning in the year 2000 with nearly two-thirds of Chinese households in rural areas, the NSBC applies a straight 80/20 urban/rural private housing weighting throughout our time sample.

This further skews the accuracy of the final data. To correct for these manipulative practices, I use third party and related NBSC data to better estimate the change in consumer prices in China between 2000 and 2011. I find that using conservative assumptions about price increases the annual CPI in China should be adjusted upwards by approximately 1%.

This reduces real Chinese GDP by 8-12% or more than $1 trillion in PPP terms.

Image of sink hole by Tony Alter