China has been overstating the role of private investment in its economy

March 5, 2020 3:30 PM
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REUTERS/Carlos Barria

The recrudescence of state control of the economy in China has been widely noted in this space and elsewhere, along with evidence that this shift is suppressing China’s economic expansion. But newly released data from China’s statistical agency show that previously published official data for recent years substantially overstate the share of private investment and understate the role of the state.

As shown in the table below, the estimated share of private investment in 2019, based on the new data, is 44.2 percent, compared to the 48.5 percent in 2017 that can be calculated from officially reported data. The estimated share of state investment in 2019 is 42.4 percent, compared to the 37.0 percent in 2017 that can be calculated from official data.

This does not mean that the share of state investment increased or private investment decreased after 2017. As will be made clear below, the shift shows the 2017 shares are inaccurate.

The new estimates are based on substantial ongoing revisions to official data on fixed asset investment (FAI).[1] Revisions are based on China’s fourth national economic census, completed in 2019. Analysts have long noted that FAI numbers have overstated capital formation by an increasing margin over time but have relied on these data since they are the only source of information that identifies the shares of investment by state and private firms. The assumption, now shown to be false, was that the overstatement in the FAI data was similar across ownership categories.

Capital formation increased by about 15 percent between 2017 and 2019. But, as can be seen in the table, as falsification and mismeasurement have been wrung out of the FAI data, the level reported for 2019 is well below the level of 2017. The table clearly shows that overstatement has been more pronounced in private firms than in state firms.

Unfortunately, it is not possible to construct a corrected time series on private and state investment and, if past practice is any guide, Chinese statistical authorities are unlikely to release corrected data.

New data show that overstatement of fixed asset investment has been more pronounced in private firms than in state firms 
  State and private shares of fixed asset investment (FAI)
  2017 2019
(RMB 100 million)
(RMB 100 million)
Total 631,684 100.0 560,874 100.0
Nongovernmental 385,010 60.9 311,159 55.5
of which is private 306,615 48.5 247,6831 44.2
State 233,586 37.0 237,9372 42.4
Residual 13,088 2.1 11,7783 2.1
1. Assumes that private FAI accounts for 79.6 percent of nongovernmental FAI, the same as in 2017.
2. Calculated as: total – nongovernmental – private – residual
3. Assumes the residual is 2.1 percent of total, the same as in 2017.
Notes: Numbers in red are calculated. Other numbers were reported by the National Bureau of Statistics of China. China’s statistical authorities discontinued publishing data on state and private FAI after 2017 but continued to publish data for both total and nongovernmental (民间) FAI. The latter includes FAI undertaken by collective, private, and individual units.
Source: National Bureau of Statistics of China, and author’s calculations.


1. The official definition of FAI is investment in construction projects with a planned value of RMB 5 million or more plus the purchase of fixed assets, including land. The purchase of an existing fixed asset is not included in capital formation, since such transactions only change the ownership of an asset and do not add to the productive capacity of the economy.

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Nicholas R. Lardy Senior Research Staff

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