Written by Elizabeth Davis
Most people, when asked about the root causes of economic disasters, would answer in terms of market crashes, inflation, or rapid output growth; not often would they suggest the falsification of economic reports. Yet errors that occur in the reporting of data, a seemingly trivial aspect of economics, have the potential to create large scale economic disasters of equal or worse effect than traditionally caused disasters. The most extreme example of this occurred in China during the 1960s and 1970s, and caused one of the greatest famines in human history, resulting in 30 million deaths Chinese deaths during its tumultuous push towards extreme socialism under Mao Zedong.
In 1958, Mao Zedong, then the leader of the Chinese Communist Party, launched the “Great Leap Forward” political movement in an effort to intensify China’s path toward socialism. His primary motivation was to increase both industrial and agricultural production rapidly by enforcing output goals, particularly of grain in villages, which were to be ensured by local village officials. He used the “cult of personality” that China had built around him as a leader to implement propaganda to necessitate desirable grain output. Mao’s target outputs were unrealistic; however, the grip he held upon the Chinese population prevented any opposition to his set goals. Village leaders were forced to falsify their figures of production to meet these targets, partly influenced by fear of failing Mao’s “courageous” expectations. This led to production falling as procurement targets from Mao continued to increase. Given false reports of higher grain output, governments began taking higher shares of these yields, leaving little to nothing for the producers. Villagers starved, and in extreme cases, resorted to cannibalism. The dangerous combination of unrealistic and poorly-informed targets of production, falsified reports which caused target increases, and deep-seated political fear to amend these economic atrocities created a disastrous three-year period with tens of millions of deaths. This event, however, is overlooked in Chinese history, called nothing more than a “natural disaster” in their history books.
The Great Chinese Famine is an event known to few, partially because of China’s desire to erase it from history, but also due to the seemingly harmless effects of erroneous economic reports. Nevertheless, data falsification is a persisting problem in China. Even after the Great Leap Forward, and as early as 1982, the Chinese Central Committee found that “the most difficult thing for a leadership unit to do is to collect accurate information at the basic level,” (Tasi, 2008, p. 805) as local officials often inflated their village income figures. In a survey of 316 villages, 81% of officials said their reported village income was higher than their real income, demonstrating that official reports for net income per capita in villages differed from their true values (Tsai, 2008, p. 809). Motivations for the inflation of income per capita lay in taxation rates and revenue. When economic figures were inflated in a village, officials were able to increase tax rates and thus increase the amount of levies they collected, taking more from citizens who had less to begin with, bearing a semblance to the Maoist era. Further, the over-reporting of village income was most common in poorer, agricultural villages who could use the extra tax revenue to promote development (Tsai, 2008, p. 818). However, in considering alternative routes that this extra revenue could take rather than direct investment to promote development, another opportunity for deception emerges. It is difficult to guarantee the use of tax revenue for its stated purposes due to the top-down regulatory approach of the Chinese central government, as there is little opportunity for the direction of tax revenue at the local level. This makes the effects of data falsification at this level more ambiguous and potentially dangerous. As demonstrated, less developed villages are the traditional and most prominent sources of data falsification in China since the Great Leap Forward, yet this does not mean falsification is solely confined to localities.
Data falsification also exists in broader governmental levels in China; however, market reforms have expanded the industries in which economic fabrication occurs. Today, hundreds of targets, as opposed to explicitly agricultural targets in Mao Zedong’s China or industrial targets in Deng Xiaoping’s China, such as carbon emissions and energy usage, are falsified.
In contrast to the initial emergence of data falsification in Mao’s China, it has now been openly admitted by the Chinese central government that they engage in these practices. The current Premier of China, the Head of State second only to President Xi Jingping, Li Keqiang, stated his preference for alternative measures of economic activity besides GDP due to the presence of false reports. Such measures include electricity use to indicate overall consumption, cargo freight to indicate manufacturing, or bank loans to indicate the amount of spending and borrowing (Yueh, 2013). This has resulted in the creation of the Li-Keqiang index, which is used as a more reliable measure of Chinese economic growth.
Li Keqiang’s declaration is one of many steps China is currently taking to prevent widespread data falsification within its society. Additionally, China has turned to a centralized approach to ensure the validity of some reported figures, particularly of pollution. A centralized method is effective with data such as local pollution reports, as most of China’s environmental problems lie in weak local, rather than central, enforcement (Zhang, 2017, p. 750). However, this centralized approach may not be applicable to falsification generated at the top level of government. Therefore, programs specialized to eliminate falsification in their areas of origin are effective, yet resource intensive efforts. Still, these programs offer positive potential: if they received enough research and funding, they may curb falsification and perhaps fend off potential economic calamities.
It is important to note that although data falsification saw its most extreme repercussions in Chinese society, this is not a practice unique to China. The United States is known to have falsified scientific data and to have practiced research misconduct, and Greece is said to have misreported data in order to keep their interest rates low in the wake of their most recent financial crisis. However, many countries have committees such as the United States’ Office of Research Integrity, which hold officials responsible for any detected false reports—certainly a valuable tool worthy of consideration by the Chinese government.
The stories of China in Mao’s Great Leap Forward and beyond, as well as of other countries in attempts to salvage their policy plans or economies, may be less common than those of stock market bankruptcies or of surging inflation, but hold with them a grave message. Their consequences are often of equal or greater detriment to the traditionally considered factors of economic disaster. Falsification is poised to enable corruption if excess revenue, collected through miscalculated rates of taxation, is not closely monitored. Erroneous economic statistics on a country may create a false sense of satisfaction among citizens rather than prompting them to call for necessary change. And in the most extreme cases, such as those that occurred in Mao Zedong’s China, the falsification of economic data can lead to exponential cases of economic peril, and even death.
Tsai, Lily L. “Understanding the Falsification of Village Income Statistics.” The China Quarterly, vol. 196, 2008, pp. 805–826., doi:10.1017/S0305741008001136.
Yueh, Linda. “What Is China’s ‘Li Keqiang Index’.” BBC News, BBC, https://www.bbc.com/news/av/business-24573373.
Zhang, Xuehua. “Implementation of Pollution Control Targets in China: Has a Centralized Enforcement Approach Worked?” The China Quarterly, vol. 231, 2017, pp. 749–774., doi:10.1017/S0305741017000959.