Identifier
Created
Classification
Origin
06BEIJING11705
2006-06-09 07:14:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Beijing
Cable title:  

State Council Researcher Says Local Officials'

Tags:  ECON EFIN PGOV CH 
pdf how-to read a cable
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RR RUEHCN RUEHGH
DE RUEHBJ #1705/01 1600714
ZNR UUUUU ZZH
R 090714Z JUN 06
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 8235
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 1143
RUEHFR/AMEMBASSY PARIS 3814
RUEHRC/DEPT OF AGRICULTURE WASHDC
UNCLAS SECTION 01 OF 02 BEIJING 011705 

SIPDIS

STATE PASS USTR FOR STRATFORD, WINTER, PORTER, LAWRENCE
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER; SAN
FRANCISCO FRB FOR CURRAN; NEW YORK FRB FOR DAGES/CLARK
TREASURY FOR OASIA/KOEPKE
STATE FOR EAP/CM, EB/TPP
USDA/FAS/ITP FOR SHEIKH
USDOC FOR 4220/ITA/MAC/MCQUEEN
USDOC FOR BEA
LABOR FOR ILAB NEWTON, LI ZHAO, SCHOEFFLE
PARIS FOR US MISSION OECD

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV CH
SUBJECT: State Council Researcher Says Local Officials'
Political Goals Pushed Rapid First Quarter GDP Growth

REF: Beijing 7519

UNCLAS SECTION 01 OF 02 BEIJING 011705

SIPDIS

STATE PASS USTR FOR STRATFORD, WINTER, PORTER, LAWRENCE
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER; SAN
FRANCISCO FRB FOR CURRAN; NEW YORK FRB FOR DAGES/CLARK
TREASURY FOR OASIA/KOEPKE
STATE FOR EAP/CM, EB/TPP
USDA/FAS/ITP FOR SHEIKH
USDOC FOR 4220/ITA/MAC/MCQUEEN
USDOC FOR BEA
LABOR FOR ILAB NEWTON, LI ZHAO, SCHOEFFLE
PARIS FOR US MISSION OECD

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV CH
SUBJECT: State Council Researcher Says Local Officials'
Political Goals Pushed Rapid First Quarter GDP Growth

REF: Beijing 7519


1. (SBU) Summary: One of the State Council's leading
macroeconomic researchers asserted that China's rapid GDP
growth rate in the first quarter of 2006 (reftel) primarily
was due to exaggerated economic growth reports from newly-
installed local government officials seeking to make a good
impression during their first evaluation periods. Local
governments also increased the number of investment
projects in late 2005, leading to faster-than-expected
growth in early 2006, he said. The researcher stated that
he expects GDP growth to continue at a fast clip through
the first half of 2006 before cooling to a "normal" growth
rate of approximately eight percent in the second half of
the year. End Summary.


2. (SBU) Li Jianwei, Vice-Director of the Macroeconomic
Research Department at the State Council's Development
Research Center (DRC),briefed Embassy-sponsored visitors
from the Defense Orientation Conference Association (DOCA)
on China's macroeconomic situation on June 6. During the
briefing (also attended by Econoffs),Li discussed GDP
growth trends since 2000 and assessed rapid growth during
the first quarter of 2006 (1Q06) that surpassed
conservative government projections, reaching 10.3 percent
(previously reported on April 20 as 10.2 percent).

DRC: Ten Percent Growth Should be Short-Term Phenomenon
-------------- --------------


3. (SBU) Li stated that GDP growth has averaged 8.2 percent
annually since 2000 but hit 10.1 percent in 2005. Analysts
were surprised, he said, by continued growth at more than
10 percent during the first quarter of 2006 when the growth
rate reached 10.3 percent (reftel). According to Li,
statistics from April and May indicate that 10 percent
growth is a short-term phenomenon, and he predicted that by
the third quarter, growth will have slowed to a more
"normal growth" rate of eight percent. (Note: Li's
comments echoed those of National Bureau of Statistics (NBS)
spokesman Zheng Jingping, who said on April 20 that growth
would slow during the second half of the year and that
first quarter growth still was "within the margins of GDP
potential" (Reftel). End Note.)

Local Officials to Blame for First Quarter Spike
-------------- ---


4. (SBU) According to Li, newly-installed local government
officials are primarily to blame for the higher-than-
expected growth rate, following a nationwide reshuffling of
officials in 2005. While GDP growth is no longer the only
economic indicator on which officials are judged for
prmotion, Li said the view that economic growth rmains
important for political promotion prospects encouraged many
officials to launch new investment projects shortly after
assuming their new positions. As a result, when these
projects came on-line in early 2006, the GDP growth rate
was unexpectedly high.


5. (SBU) At the same time, Li said, local government
officials have little incentive to accurately report
economic growth statistics, choosing instead to exaggerate
growth figures for the sake of their own political agendas.
Because the NBS relies heavily on provincial and local
government statistical bureaus for data, local government
officials disproportionately influence national statistics,
Li stated. Local government officials' sense of urgency to
impress their political bosses with high GDP growth rate
numbers caused a temporary spike in the national growth
rate due to the combination of both increased intentional
statistical misreporting and a glut of new investment
projects, Li said.

BEIJING 00011705 002 OF 002



Comment
--------------


6. (SBU) Despite attempts to revise the precepts for
promotion in the Chinese political system, local government
officials continue to view GDP growth as one of the most
important indicators for advancing their own careers. In
addition, misreporting by local governments is a historic
problem in China, as officials seek to impress Central
Government leaders and assure them that affairs are running
smoothly in their localities. Li's comments and those of
other interlocutors indicate that the Central Government is
increasingly concerned about the reporting of statistics
and how the NBS cooperates with its provincial and local
counterparts to collect accurate statistics. Li's
statements also raise questions about the ability of the
Central Government, which is concerned about an overheating
economy, to control speculative investments in localities.
End Comment.

RANDT