Is China’s GDP Underreported Due to Tax Evasion?

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A leading Singaporean economist says that the accuracy of China’s GDP figures is compromised by both false reporting that seeks to exaggerate output, and underreporting by the private sector for tax evasion purposes.

Premier Li Keqiang recently said that China’s full year GDP growth for 2017 is expected to reach around 6.9%, well ahead of the target rate of 6.5% set by the central government at the start of last year.

The official economic data released by the Chinese government remains a perennial object of skepticism, however, with¬†Nanyang Technological University economist Yew-Kwang Ng claiming that China’s GDP figures are “watered down” by large-scale false reporting.

In an essay published by money.163.com Ng points out, however, that China’s GDP data figures currently face an accuracy dilemma which runs contrary to the false reporting that generally seeks to exaggerate economic output.

According to Ng this other problem is “reporting omissions and underreporting, especially for the purposes of tax evasion,” an issue which is becoming more acute as China’s economic structure undergoes change.

“This form of underreporting increases as the comparative importance of private enterprises increase, as the comparative importance of service sector output increases and as the comparative importance of the ‘grey economy’ increases,” writes Ng. ¬†“All three of these areas have grown significantly in China over the past several decades.”

According to Ng the rise in underreporting of economic output could either compensate for false reporting to improve the accuracy of official data, or actually lead to underreporting of GDP.

“[I] believe that China’s official data in relation to GDP is generally reliable despite the issue of watering,” wrote Ng.

“The part of China’s GDP which is exaggerated due to false reporting is very likely already smaller than the part which is underestimated due to underreporting, with this trend at the very least set to continue.”

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