China Audit Finds Provinces Faked Data and Borrowed Illegally

(Bloomberg) -- China found some local governments inflated revenue levels and raised debt illegally in a nationwide audit, a setback for Beijing in its bid to boost the credibility of economic data after a run of scandals.

Ten cities, counties or districts in the Yunnan, Hunan and Jilin provinces, as well as the southwestern city of Chongqing, inflated fiscal revenues by 1.55 billion yuan ($234 million), the National Audit Office said in a statement on its website dated Dec. 8.

Of that, 1.24 billion yuan was from the Wangcheng district in the provincial capital of Hunan, where officials faked the ownership transfer of local government buildings to boost income.

The inspection, which covered the third quarter, also found that five cities or counties in the Jiangxi, Shaanxi, Gansu, Hunan and Hainan provinces raised about 6.43 billion yuan in debts by violating rules, such as offering commitment letters.

The findings are a blow to China’s bid to rein in data fraud, which has been widespread in some of the poorer provinces where officials were incentivized to inflate the numbers as a way of advancing their careers.

Concern from investors wanting to be able to trust data out of the world’s second-largest economy led to the government trying to crack down on the practice, with President Xi Jinping saying in March that data fraud “must be throttled,” according to the state-run Xinhua News Agency.

Persistent Questions

Rigid stability in provincial data on growth and employment has long sparked questions from economists, with the rust-belt province of Liaoning, in China’s northeast, famously admitting back in January that it had fabricated fiscal data from 2011 to 2014. Some regions and cities in Jilin province and Inner Mongolia also falsified reports, the Communist Party’s Central Commission for Discipline Inspection said in June, without providing details.

The audit found a slew of transgressions by local governments.

Six counties or cities in Jilin listed 110 million yuan of project funds or hospital operating income as administrative income in a bid to bolster the figure, while the Banan district of Chongqing was able to inflate revenue by 20 million yuan by charging two private schools for the use of state-owned assets and promising to return the money at a later date.

A new supervisory body was set up within China’s statistics office in April to bolster and ensure data authenticity and quality. The country is also shifting to the latest United Nations-based statistical standard and using computers -- rather than local reports -- to calculate provincial gross domestic product, the chief economist said in September.

To contact Bloomberg News staff for this story: Feifei Shen in Beijing at fshen11@bloomberg.net.

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With assistance from Feifei Shen