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RR RUEHCN RUEHGH
DE RUEHBJ #1705/01 1600714
ZNR UUUUU ZZH
R 090714Z JUN 06
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 8235
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 1143
RUEHFR/AMEMBASSY PARIS 3814
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 011705 
 
SIPDIS 
 
STATE PASS USTR FOR STRATFORD, WINTER, PORTER, LAWRENCE 
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER; SAN 
FRANCISCO FRB FOR CURRAN; NEW YORK FRB FOR DAGES/CLARK 
TREASURY FOR OASIA/KOEPKE 
STATE FOR EAP/CM, EB/TPP 
USDA/FAS/ITP FOR SHEIKH 
USDOC FOR 4220/ITA/MAC/MCQUEEN 
USDOC FOR BEA 
LABOR FOR ILAB NEWTON, LI ZHAO, SCHOEFFLE 
PARIS FOR US MISSION OECD 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN PGOV CH
SUBJECT: State Council Researcher Says Local Officials' 
Political Goals Pushed Rapid First Quarter GDP Growth 
 
REF: Beijing 7519 
 
¶1. (SBU) Summary: One of the State Council's leading 
macroeconomic researchers asserted that China's rapid GDP 
growth rate in the first quarter of 2006 (reftel) primarily 
was due to exaggerated economic growth reports from newly- 
installed local government officials seeking to make a good 
impression during their first evaluation periods.  Local 
governments also increased the number of investment 
projects in late 2005, leading to faster-than-expected 
growth in early 2006, he said.  The researcher stated that 
he expects GDP growth to continue at a fast clip through 
the first half of 2006 before cooling to a "normal" growth 
rate of approximately eight percent in the second half of 
the year.  End Summary. 
 
¶2. (SBU) Li Jianwei, Vice-Director of the Macroeconomic 
Research Department at the State Council's Development 
Research Center (DRC), briefed Embassy-sponsored visitors 
from the Defense Orientation Conference Association (DOCA) 
on China's macroeconomic situation on June 6.  During the 
briefing (also attended by Econoffs), Li discussed GDP 
growth trends since 2000 and assessed rapid growth during 
the first quarter of 2006 (1Q06) that surpassed 
conservative government projections, reaching 10.3 percent 
(previously reported on April 20 as 10.2 percent). 
 
DRC: Ten Percent Growth Should be Short-Term Phenomenon 
--------------------------------------------- ---------- 
 
¶3. (SBU) Li stated that GDP growth has averaged 8.2 percent 
annually since 2000 but hit 10.1 percent in 2005.  Analysts 
were surprised, he said, by continued growth at more than 
10 percent during the first quarter of 2006 when the growth 
rate reached 10.3 percent (reftel).  According to Li, 
statistics from April and May indicate that 10 percent 
growth is a short-term phenomenon, and he predicted that by 
the third quarter, growth will have slowed to a more 
"normal growth" rate of eight percent.  (Note:  Li's 
comments echoed those of National Bureau of Statistics (NBS) 
spokesman Zheng Jingping, who said on April 20 that growth 
would slow during the second half of the year and that 
first quarter growth still was "within the margins of GDP 
potential" (Reftel).  End Note.) 
 
Local Officials to Blame for First Quarter Spike 
--------------------------------------------- --- 
 
¶4. (SBU) According to Li, newly-installed local government 
officials are primarily to blame for the higher-than- 
expected growth rate, following a nationwide reshuffling of 
officials in 2005.  While GDP growth is no longer the only 
economic indicator on which officials are judged for 
prmotion, Li said the view that economic growth rmains 
important for political promotion prospects encouraged many 
officials to launch new investment projects shortly after 
assuming their new positions.  As a result, when these 
projects came on-line in early 2006, the GDP growth rate 
was unexpectedly high. 
 
¶5. (SBU) At the same time, Li said, local government 
officials have little incentive to accurately report 
economic growth statistics, choosing instead to exaggerate 
growth figures for the sake of their own political agendas. 
Because the NBS relies heavily on provincial and local 
government statistical bureaus for data, local government 
officials disproportionately influence national statistics, 
Li stated.  Local government officials' sense of urgency to 
impress their political bosses with high GDP growth rate 
numbers caused a temporary spike in the national growth 
rate due to the combination of both increased intentional 
statistical misreporting and a glut of new investment 
projects, Li said. 
 
BEIJING 00011705  002 OF 002 
 
 
 
Comment 
------- 
 
¶6. (SBU) Despite attempts to revise the precepts for 
promotion in the Chinese political system, local government 
officials continue to view GDP growth as one of the most 
important indicators for advancing their own careers.  In 
addition, misreporting by local governments is a historic 
problem in China, as officials seek to impress Central 
Government leaders and assure them that affairs are running 
smoothly in their localities.  Li's comments and those of 
other interlocutors indicate that the Central Government is 
increasingly concerned about the reporting of statistics 
and how the NBS cooperates with its provincial and local 
counterparts to collect accurate statistics.  Li's 
statements also raise questions about the ability of the 
Central Government, which is concerned about an overheating 
economy, to control speculative investments in localities. 
End Comment. 
 
RANDT