I read a striking claim last week about the impact of China’s anticorruption crackdown. CNBC reported that Chi Lo, a senior economist at the bank BNP Paribas, claimed the anticorruption campaign “has knocked between 1 and 1.5 percent off the [China’s] gross domestic product (GDP) annually over the past two years[.]”
I realize that, despite the widespread belief that corruption is bad for the economy overall (a belief I share), there have been some serious and legitimate concerns raised about whether China’s aggressive approach might be going too far, deterring not only corruption but also legitimate investment projects. But Mr. Lo’s estimate (assuming CNBC reported it accurately) struck me as implausibly high, for two reasons:
- First, let’s do some math: China’s GDP in 2014 was approximately US$10.36 trillion. Let’s go with the low-end of Mr. Lo’s claim and assume that China’s 2014 GDP was 1% lower than it would have been in the absence of the anticorruption campaign. That implies (if I did the math right), that China’s GDP in the absence of the campaign would have been around $US10.464 trillion, which in turn means that China’s anticorruption campaign cost China’ by about US$104 billion in lost output. US$104 billion seems like a lot of money, even in this context. As a possible point of comparison, China’s total foreign direct investment inflows in 2014 were around US$128 billion. I suppose that in a country that’s spending around US$1 trillion annually on domestic infrastructure investment, it’s not impossible that even a relatively mild chilling effect on new projects could produce a negative effect of that size, but the idea that the additional “chill” caused by the campaign could have an impact of that magnitude strikes me as dubious.
- Second, and perhaps more importantly, I have no idea how one could possibly disentangle the impact of the anticorruption campaign from all of the other factors that might affect China’s GDP. Again, this is not to dismiss the possibility that the campaign might indeed lower GDP relative to what it would have been. But I have no clue how Mr. Lo could come up with a precise figure like 1-1.5% for the impact of the anticorruption campaign. I’m extremely skeptical that anything like a precise estimate of the impact of the campaign is even possible given the existing data, the relatively short time the campaign has been going on, and all of the other factors at play. Unfortunately, the CNBC article doesn’t provide links to any supporting documents, nor do the quoted passages explain how Mr. Lo and his colleagues made their calculations.
I’m certainly open to being persuaded that Mr. Lo’s 1-1.5% figure (a) is based on sound, or at least defensible, research methods, and/or (b) is in the ballpark of plausibility. But I must confess that at this point the estimate seems like a wildly exaggerated number more or less plucked out of the air.
I should hasten to add that this may not be Mr. Lo’s fault: He seems to have been speaking at a conference, and perhaps he misspoke or was misquoted or misunderstood by the CNBC reporter. (Perhaps, for example, he meant that China’s overall GDP was 1-1.5% lower than expected, and that the anticorruption campaign was one factor among many.) But nonetheless, once the figure is out there in the world, reported by a reputable financial news outlet, it’s worth subjecting to critical scrutiny. And it’s important that we do so, because these sorts of statements can be repeated, amplified, and converted into “truthy” factoids that can have a serious distorting effect on important public policy debates. It would be a shame if (notwithstanding all the legitimate criticisms of China’s current anticorruption campaign), news stories like this one dissuade other countries from taking aggressive action to combat corruption, out of fear that it would do extensive damage to their economies, if it turns out that the underlying claim is not in fact true.