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Provinces’ first-half figures for GDP growth also have revived the debate over the country’s statistics

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Provinces’ first-half figures for GDP growth also have revived the debate over the country’s statistics.

New economic data for China broken down by region shines a light on how uneven growth is around the country and how the nation’s statistics are still suspect.

The figures that have trickled out in recent days, measuring gross domestic product in the first half of 2016 by individual province, have revived old questions over China’s statistical methodology.

 

The weighted-average GDP growth for 30 of China’s 31 provinces and administrative regions was 7.3% compared with the first half of 2015, according to calculations by BMI Research, a firm that provides macroeconomic, industry and financial-market analysis.

 

That is significantly higher than the 6.7% national figure. The one province that hasn’t reported, Heilongjiang in the northeast, isn’t likely to change that.

 

Statistical quirks account for some of the discrepancy. Shipments across provincial boundaries, for example, often are counted by both governments.

 

Provincial officials also have a long history of inflating their growth figures to raise their chances of promotion by Beijing.

 

“Local officials have incentives to inflate their figures,” said BMI Research analyst Lin Shuo.

 

In recent years, as growth has slowed, provinces have come under pressure to stop fudging their numbers.

 

The data also reflects the growing divide between those Chinese provinces with vibrant private economies, the nation’s struggling rust-belt regions and areas propped up by stimulus. The disparity is widening as Beijing tries to engineer a shift from investment-led growth to consumption and high-tech industries.

 

This year’s figures show a bigger gap between the fastest-growing region, western Tibet with 10.6% growth, and the slowest, Liaoning, which shrunk by 1%.

 

The highest growth rates in the first half of 2016 were in the western and central regions, which include Guizhou and Chongqing. They grew by about 8% in the first half.

 

Beijing has provided stimulus and other benefits and encouraged manufacturers to relocate to these regions, where wages are lower, to spread the benefits of development more evenly and stem the loss of jobs to lower-wage countries.

 

“If China doesn’t develop its underdeveloped areas, it will lose lower-value-added industries to Vietnam and Bangladesh,” said AXA Investment Managers economist Aidan Yao. “These areas are in a state that the east coast provinces were in 20 to 30 years ago.”

 

The lowest growth rates in the first half were in the rust-belt northeast, including steel-heavy Liaoning province. China has tried to reduce its dependence on old growth drivers that dominate this region, such as low-end manufacturing, natural-resource extraction and massive state-owned companies.

 

The northeastern economies, including those of Hebei and Shanxi provinces, were slowed by efforts to cut excess industrial capacity in steel and coal. China is expected to step up efforts to cut capacity in the coming months.

 

In an effort to turn around the lagging northeast, Beijing has rolled out a parade of revitalization plans. In a May visit that included a stop at a blueberry plantation, President Xi Jinping told officials in Heilongjiang they cannot afford to be halfhearted in upgrading old industries and nurturing new ones. But most attempts to diversify industry in the region have fallen short.

 

The east coast provinces grew relatively quickly, with more advanced manufacturing, high-tech industries and startups that the government is eager to promote. Fujian reported growth of 8.3%, and Guangdong—7.4%.

 

This more entrepreneurial region is also making the most progress in shifting to consumption and services, economists say. Shanghai, Guangzhou, Shenzhen and Hangzhou—among the area’s largest cities—reported that services now account for more than 60% of their economies.

 

The region, which grew 7.6% during the first half, provides China’s best hope of escaping the middle-income trap—when fast-growing emerging economies fail to make the transition to developed nations—by harnessing the energy of private companies that are much better represented in this region, economists say.

 

“Private companies have relatively healthy profits and will bounce back,” said BMI Research analyst Tong Yiling. “In many places like Zhejiang and Shanghai, we’re seeing a lot of investment in innovation.”

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