Stop the numbers game

by Philip Bowring



SCMP October 4, 2004

Statistics lie. So do government officials.
Take the statistics. Do you sincerely believe the Hong Kong economic growth data? I do not. As for officials, they appear to deliberately misrepresent data used to justify cuts in payments for the neediest.

I have mentioned this gross domestic product issue before, but will go on doing so until I get a satisfactory explanation of why, year in year out, the actual GDP numbers - that is, those in terms of the Hong Kong dollars in your pocket - are so different from the government's "real GDP" boasts.

Take the latest numbers for the second quarter of this year, which claim 12-per-cent year-on-year growth, bringing the half-year increase to 9.5 per cent. It sounds impressive. But look more closely and you will see that the increase in actual dollars for the half-year was just 5.7 per cent.

The official figure is inflated by the government's GDP deflator, which purports to adjust the number for inflation, showing that prices for the economy as a whole were 3.4 per cent lower in the first half of this year than a year earlier. Any half-wit knows this is not true. The composite consumer price index (CPI) was just 1.3 per cent lower for the period, and the import prices were actually 1.9 per cent higher.

Hong Kong consistently manages to claim rising levels of growth. The phenomenon has become so persistent that some might conclude the figures are being manipulated. To maintain credibility, the method of calculation needs fundamental revision to make it more realistic. Last year's big fall in the deflator was actually blamed on a decline in the terms of trade - that is, the prices of imported goods were rising while those of exports were not. This was indeed a perverse result.

Between 1998 and the middle of this year, the sum of annual changes in the deflator has fallen by a cumulative 24 per cent. By contrast, the annual average CPI has fallen by just 12.9 per cent over the same period, and the import price index by 12.5 per cent. In the same period, wage rates have fallen by about 2 per cent and producer prices for manufacturers by around 8 per cent.

The nonsense of the deflator allows the government to claim the economy has expanded by about 18 per cent overall and by 14 per cent in per capita terms since 1997, even though in current price terms it is still below the handover level.

Some statistics lie. But others lie about statistics. Look at the Social Welfare Department's defence of its cut in social security assistance for the elderly, disabled, sick and unemployed. Mean enough in itself, this was followed by a barrage of misinformation. Most recently there was an attempt to rebut the assertion by Jake van der Kamp in this newspaper that the cuts were much greater than the fall in the cost of living index for social security recipients. Officials claimed that before the cuts, payments had been increased in anticipation of price rises that did not materialise.

In March last year, I queried the government on the relationship between the index and the payments. From the data provided by the department, it was clear that the adjustments in 1997-1998 and 1998-1999 were in response to cost-of-living rises that had already occurred. The price index rose 6 per cent in 1995-1996 and 4.2 per cent in 1996-1997. The government data showed no compensating payment adjustment for those years.

The overpaid senior bureaucrats have since shifted the base of comparison forward, to make the claim that payments had moved ahead of the cost of living, and because the adjustments anticipated - rather than followed - price rises. All the official information I can find suggests this was never true. Will Mr Tung call for an investigation and find the truth? Or is accountability to the chief executive measured by provision of politically convenient, rather than accurate, data?

The latest bit of misinformation is the government's claim last Thursday of a huge reduction in the fiscal deficit. This was achieved mainly by counting bond issues as "revenue"!




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