China admits pay fudge
By Wu Zhong, China Editor

HONG KONG - The chief aim of China's economic reform and opening up in the past 30 years has been to introduce and boost the development of privately run businesses, breaking down the state monopoly of virtually everything in the economy
. In this way, the country's Stalinist-style socialism has been broken into capitalism with "Chinese characteristics".

The private sector, including foreign-invested businesses, has now grown so big that it contributes more to gross domestic product (GDP) than the public sector. Given this, any economic statistics that do not cover the private sector cannot reflect the true picture.

It is thus natural for people to assume that data released by the National Bureau of Statistics (NBS), a cabinet-level body supposed to provide the most authoritative economic statistics, would have the private sector well covered. Such an impression is completely wrong. It seems that statistics in the Middle Kingdom also come with "Chinese characteristics".

NBS statistics on the average per capita disposal income of urban residents, an indirect measurement of changes in wages, cover only employees in the public sector and exclude all private-sector workers.

Surprisingly, this loophole in economic statistics has been exposed by none other than the head of the NBS, Ma Jiantang.

On August 22, Ma gave an interview with the Hong Kong-based, pro-Beijing Phoenix TV. When asked by the hostess to comment on public perplexity and anger over the latest NBS statistics showing that growth in urban residents' income (11.2%) outpaced the country's expansion in GDP (7.1%) in the first half of this year, Ma said he "flushes [with embarrassment]" at such an apparent discrepancy. (See China produces a wages miracle, Asia Times Online, August 5, 2009).

Ma revealed that the calculation of urban residents' income did not cover the "private sector", and conceded that "the basis for calculating income indeed is too narrow". He then disclosed that the NBS had worked out a new method to calculate urban people's income that takes into account the private sector. But he stopped short of explaining why the private sector had been excluded since 1980, when the NBS began to compile such statistics.

If the private sector could be neglected in statistics in 1980, when China had just started its transformation, because it played such a tiny role in the national economy, this is certainly no longer the case.

In China, two terms are used to refer to what the West calls the "private sector". One is the narrow-meaning siying jingji, or private economy, which refers to businesses run by individual Chinese nationals. The other is minying jingji, or non-public sector, with a broader meaning that covers all businesses not run by the state, including Chinese and foreign-invested businesses and privatized state-owned enterprises. Minying jingji, then, appears to be closer to what others would consider the "private sector".

According to a joint study by the All-China Federation of Industry and Commerce, the NBS and the National Development and Reform Commission (NDRC), in 2006, minying jingji's contribution to GDP had then already reached 65%, and this was expected to grow to 75% by 2010. Moreover, about 75% of the 240 million workers employed in cities across the country were working in minying jingji.

Even the narrow siying jingji (with foreign-invested businesses excluded) plays an impressive role in the national economy. By the end of 2006, registered private businesses (run by Chinese nationals) totaled 4.95 million, employing 120 million workers (including the self-employed), according to data from the State Administration for Industry and Commerce. The siying jingji contributed 40% of the country's GDP.

It is not clear from Ma's vague mention of "private sector" whether the NBS calculation of urban income excludes minying jingji or just siying jingji. But even if the latter is the case, at least 40% of wage-earners in cities are not covered in its statistics. Thus, the results are anything but reliable.

In his interview with Phoenix TV, Ma said, "If everything goes smoothly, we could publicize this year's average income of workers in the private sector." This has only strengthened suspicion that non-statistical factors have prevented the NBS from taking the private sector into account in its calculations of urban income.

A commentary in the China Youth Daily says that if employees in the private sector were included in the NBS statistics of urban income, the figures would be "much smaller" than had been reported.

This is very likely, because the major labor forces in the private sector (both minying jingji and siying jingji), are rural migrant workers who tend to be paid only minimum wages. According to some estimates, some 120 million rural migrant workers now work in cities, accounting for half of the urban labor force. If the low pay of this group were included, the average per capita income of urban residents would be recognized as much lower than acknowledged at present. The higher figures allow the authorities to boast about the "great improvement" of people's livelihoods.

People in China have complained that their incomes always grow at a slower pace than GDP, saying the government and officials benefit more from economic growth than the average person. If the real, lower-average urban income figures were given, people would be even more outraged.

The increase in people's income relative to GDP growth is also a measure of the performance of local officials. That gives a strong reason to believe that local officials resist the inclusion of low-paid workers in the private sector in the calculation of average income.

The NBS prefers to use such vague indicators as "per capita disposable income" instead of average wages or median wages to measure urban income.

Both Premier Wen Jiabao and his predecessor, Zhu Rongji, are known to frown on the fabrication of economic data. In 2001, when the no-nonsense Zhu was asked to write mottoes for two new accounting colleges in Beijing and Shanghai, he wrote the same for both of them, "Do not fabricate accounts!" Wen's requirement for statistics is "truthful and believable".

It has taken some courage for Ma to make his confession on the falsification of urban income figures, but a serious question follows: what other statistical figures released by the NBS are based on carefully selected raw data?