A woman wearing a protective mask amid heavy smog at the Tiananmen Square,
after the city issued its first ever "red alert" for air pollution in
Beijing on Dec. 9
The first-ever air pollution red alert sounded by Beijing on Dec. 8
received the international attention it deserved. The foul, orange-tinged air
suffocating the Chinese capital is the most visible failure of the
performance-conscious Chinese government in delivering on its promises to clean
up the country's severely degraded environment.
We should all welcome the Beijing municipal
government's public, albeit humiliating, acknowledgement of the obvious: Beijing's
air is not fit for breathing. Yet, Beijing's first "red alert" raises
an even more important question about the credibility of the Chinese
government. Is it telling the truth about the true state of China's
environmental degradation?
Autocratic regimes are known to exaggerate their
achievements and conceal their failings. And the Chinese Communist Party is no
exception. For example, Beijing's economic statistics are so dodgy that the
international business community have grave doubts about the veracity of
Chinese data on economic growth (almost certainly overstated), unemployment
(likely understated), and nonperforming loans (deliberately underreported).
Systemic falsification of vital economic data may make
the Chinese government look more competent, but also can boomerang on the very
government that has turned data-concoction into a fine art. The first victim,
in fact, is the Chinese government itself. Leaders in Zhongnanhai, headquarters
of the CCP and the State Council, need accurate data to make decisions. But
since local officials, driven by the same incentives that motivate the regime
to report fake data, routinely overstate good news and hide bad news, top
Chinese leaders face enormous difficulties in learning the truth.
For example, Premier Li Keqiang, the country's top
economic policymaker, candidly shared with a former U.S. ambassador his doubts
on official provincial gross domestic product growth numbers which, in his
view, "are for reference only." Subsequently, he developed his own
system of estimating economic growth based on power consumption and railway
freight volumes.
Today, perhaps even more critical than GDP datum is the
health of China's banking system. As we know, China has gone through a credit
binge that has pushed its debt-to-GDP ratio to 280%. Based on international
experience, credit binges end in banking crises without fail.
But you would not know this if you trust officially
reported numbers on nonperforming loans. According to data released by the
China Banking Regulatory Commission, nonperforming loans at the end of
September stood at 1.59% of total outstanding credit in commercial banks.
However, according to a recent survey of 112 executives from Chinese banks and
asset management firms conducted by China Oriental Asset Management, 90% of
them said official data on nonperforming loans were understated. A third of
them believed that such data were "seriously understated."
A close analysis of official data on nonperforming
loans by ratings agency Moody's Investors Service also found a serious
inconsistency. Chinese commercial banks reported an increase in nonperforming
loans of 25 basis points in the first half of 2015. The increase in loans that
were overdue by 90 days or more, a vital measure of loan quality, was much
higher at 77 basis points, implying the deterioration of loan quality was
underreported.
For business executives, doctored numbers could mean
bad decisions and investments. But for ordinary Chinese people, fabricated data
can kill.
'Killer' data
Nowhere is
the lethality of deceit more evident than in the systemic understatement of
China's environmental degradation. Estimates by scientists suggest that people
living in northern China lose five years of their life expectancy due to air
pollution alone.
But those residing in the regions blighted by air pollution would
not know the dark truth if they took official data at face value. According to
the China Statistical Yearbook, the most authoritative compilation of
socioeconomic data issued annually by the State Statistics Bureau, coal
consumption rose more than three times, from 1.05 billion tons to 3.52 billion
tons, from 1990 to 2012. But the amount of sulfur dioxide, a pollutant
byproduct from coal burning, showed no commensurate increase. The Ministry of
Environmental Protection's data for 1993-2011 registered an increase of only
57% in the amount of sulfur dioxide released into the air.
It thus came as no surprise that air quality, as reported by the
Ministry of Environmental Protection, showed a miraculous improvement in the
period. Cities meeting the standard of Grade II (relatively clean air) rose
from 50% to 90% in the 1993-2011 period. This is, of course, pure fiction. When
the Chinese government adopted a more stringent measurement system in 2014, 90%
of the cities were found to have failed to meet air quality standards.
Right before Beijing's air pollution red alert, a retired senior
official of the Ministry of Environmental Protection publicly claimed that
China has understated its SO2 emission by at least 50%. According to Luo
Jianhua, half of China's coal is consumed in steel mills and other factories
that have not installed scrubbing equipment that would remove SO2, but official
data on SO2 discharges do not reflect this fact.
Like the questionable numbers on air pollution, Chinese statistics
on water pollution also make little sense. According to the Ministry of
Environmental Protection, the volume of wastewater discharged into Chinese
rivers and lakes nearly doubled from 35.5 billion tons to 69.5 billion tons
between 1993 and 2013, but water quality, again, mysteriously improved. In
1993, slightly more than half of the sections of the seven major river systems
monitored by the ministry were considered clean; but in 2013, the number rose
to 65%.
One might attribute such improvement to better compliance by
Chinese companies and local governments with environmental standards. But that
does not appear to be the case. The ministry itself has publicly acknowledged
that local governments and Chinese companies routinely fake environmental data,
especially those concerning the amount of pollutants discharged into the air
and waters. If one types into Google the words "the Ministry of
Environmental Protection publishes names of entities faking reports on
discharge of pollutants" in Chinese, more than 160,000 results will pop
up. A search of the same term using Chinese search engine Baidu will generate
1.66 million results.
In the wake of Beijing's air pollution red alert, the Chinese
government's focus has been mostly on technical fixes. While these are
obviously needed, they do not address one of the weakest links in the Chinese
system: untrustworthy vital information. Successful environmental remediation
is inconceivable when the real extent of environmental degradation is
deliberately and systematically concealed. Let us hope that the Chinese
government will have learned a critical lesson from Beijing's latest episode of
"airpocalypse" and issue a new and even more badly needed red alert:
on fictitious official data of all kinds.
Minxin Pei is a professor of government at Claremont McKenna College.
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