A 75-year-old mathematical tool, developed by American engineer Frank Benford, is calling China a liar, as Bloomberg reports:
A mathematical tool devised by an American physicist in the 1930s underscores doubts about the quality and reliability of Chinese economic data …
The results are based on “Benford’s Law,” which holds that in any series of numbers, certain patterns will be found only if the statistics are naturally generated…
An examination of the quarterly GDP growth rate from December 1991 to September 2012 shows zero occurred as the second digit 21 times, much higher than what Benford would calculate and suggesting a rounding-up to achieve a bigger leading digit.
Forgive us for not being shocked. China’s self-reported economic stats have been under scrutiny for some time now. The temptation for China’s central planners to fudge the numbers is especially strong given the pressure the country and the ruling party is under to continue to produce phenomenal growth.
Not surprisingly, China’s National Bureau of Statistics has denied accusations of number-fixing. Their response to these allegations in the past has been to say: “prove it.” That has been difficult, as China’s economy seems to be getting less transparent over time.
But while Benford’s Law isn’t enough to indict China on number fudging on its own, the Law has a decent track record. As Bloomberg goes on to say, the law “has already been adapted to show Greece should have been suspected of manipulating its data before the European debt crisis and that now-jailed financier Bernard Madoff was overstating investment returns.”