The perennial debate over the reliability of China's official economic data has caught fire again, but with potentially more severe repercussions as its weakening economy fuels fears of a global recession.
A roar of scepticism went up after Beijing's claim that China posted a gross domestic product (GDP) growth rate of 7 per cent in the first half of the year and can maintain roughly that rate in the third quarter.
Some economists point to the coincidence as suspicious: Beijing set a yearly growth target of "about 7 per cent" in March this year and was spot-on in meeting it. The figure also raised doubts as it was not in line with other data suggesting a slump in the manufacturing and residential real estate construction sectors, China's economic powerhouses.
"There has been a long history in China of the official GDP data understating true GDP during a boom and overstating it during a slowdown, but the degree of overstatement on true growth by official data since about 2010 goes well beyond such smoothing," wrote Citigroup chief economist Willem Buiter in a note. He thinks growth in the first half could be "4 per cent or less".
The National Bureau of Statistics (NBS) defended its figures, emphasising the rebalancing in the world's No. 2 economy that is keeping growth steady. The service industry that includes financial, and hotel and catering services is - for the first time - on par with both the primary and secondary sectors combined in its contribution to GDP. The primary sector refers to agriculture while the secondary sector refers to industries like manufacturing and construction.
GDP generated by services has outstripped the secondary sector since 2012. This means it no longer suffices to use only old indexes such as increases in loan supplies, electricity generation and cargo throughput to measure China's performance as they have become "less accurate and representative", NBS spokesman Sheng Laiyun said at a news conference last month.
Electricity usage in the service sector, for instance, is about 20 per cent that of the industrial sector, so using only data on electricity consumption to derive a growth forecast would be wrong, he added.
The Chinese economy's shift to a service-led growth model has been accelerating with its share of GDP rising for the past five consecutive years. From January to June, the service sector contributed 50 per cent of China's GDP, up from 48 per cent for the whole of last year. It grew at a rate of 8.4 per cent, faster than the secondary sector's 6.1 per cent and the primary sector's 3.5 per cent.
Dr Friedrich Wu, an associate professor of international political economy at the S. Rajaratnam School of International Studies, said the trouble with measuring growth is that many services are difficult to count at the local levels. "It will take some years for the Chinese statistical authorities to come up with a comprehensive and valid set of services indicators," he noted.
But doubts over the reliability of China's data go back decades. In 1998, as the Asian financial crisis hit economies like South Korea, Thailand and Indonesia, Beijing reported 7.8 per cent GDP growth. Many economists later concluded that growth was closer to 5 per cent.
Capital Economics' chief Asia economist Mark Williams said China's recent GDP data is likely inflated by 1 to 2 percentage points resulting from a metric that understates inflation, creating the impression of faster real growth.
Experts say while Beijing has made significant strides to improve data accuracy and transparency, more can be done. No one knows, for instance, how China accounts for inflation when tabulating GDP.
"It would be wrong to call the Chinese system a black box. But if the NBS wants to restore trust, it will have to become much more of an open book," said Bloomberg economist Tom Orlik.
With China making up 15 per cent of world economic output, openness is also more crucial in light of a faltering global economy. Insufficient data dims the understanding of China's economy and can lead to panic. This has ripple effects on the global economy, such as the Chinese stock market rout last month that pummelled global stocks, UOB's China economist Suan Teck Kin said.
"Beijing should work on releasing frequent authoritative studies on the economy, such as on its housing sector, to engage investors and the public so as to let them understand how it thinks about issues and how this might affect future policies," he added.