Alan Greenspan warns that the bubble of the Shanghai stock market must burst. Ignoring his advice leads to a concern that a collapse in share prices could prick the real-estate bubble and then melt down the financial system. Behind that prospect hover cautions by Chinese authorities against over-heating in the real economy.

Yet, the Chinese miracle remains the envy of the world. Do the numbers stack up?

An article in the November 2003 issue of one of the world’s most reputable scholarly periodicals, the Journal of Political Economy, examined the statistical evidence between 1978 and 1998. Its author, Alwyn Young, turned “the extraordinary into the mundane”.

Instead of playing with the final figures published by central administrators, Young tracked how those results had been constructed from the numbers forwarded from the bottom. Lower-level officials were rewarded for meeting expectations and punished for failing to come in on target.

From time to time, the central authorities tried to correct the resultant errors. For instance, “the 1994 gross industrial output estimates were revised downward by about 9%”.  That year, the Government identified 70,000 cases of misrepresentation. Another reason for the gulf between the hype and the performance has been a “systematic understatement of inflation of enterprises”.

Young concluded that “the growth rate is not the highest in all recorded human history, but at levels previously experienced by other rapidly growing economies”. He reckoned that labour productivity had increased by 2.4% a year on average. Total factor productivity has risen by only 1.4%, which was “respectable but not outstanding”.

More recently, other experts have doubted the high-flying numbers. In the China Economic Review (2004), a researcher from the Beijing Statistical Office discussed the confusion following the switch in national accounts from Soviet-era material product calculations to the United Nations’ System of National Accounts. The latter includes more services — including the Shanghai Stock Exchange?

In the same issue, Carsten Holz reported other criticisms by Chinese officials of the statistics. Holz complained that none of critiques allowed a researcher to reconstruct household consumption. Furthermore, the relationship between the GDP component of household consumption and the underlying data varied from year to year. Hence, comparisons of Chinese GDP figures across even brief spans of time remained unreliable.

In light of these uncertainties, how can investors be expected to put a realistic price on shares? Meanwhile, Young and the other sceptics offer reasons for taking a harder look at the writing on the wall.