Here we introduce the process of GDP compilation by statistical bureaus in China, and the potential for local government maneuver, drawing heavily from Ma et al. (2014) and Holz (2005). The National Bureau of Statistics (NBS), an agency directly under the State Council, is in charge of the collection, research and publication of economic statistics throughout China. Local governments at the level of county and above have their own statistical division, which is under the joint oversight of the local governments and the statistical counterpart one level up.<sup>15</sup> Take the provincial bureaus of statistics (provincial Bureaus for short) as an example. The provincial governments hold the appointment authority over major statistical personnel and make key decisions on the funding allocation to provincial Bureaus. Meanwhile, provincial Bureaus must conduct statistical works following the rules and guidelines issued by the NBS.

Statistics collected by local Bureaus are reported to the next higher level. Provincial GDP statistics thus depend on the GDP figures reported by each prefecture, as well as on the independent sampling and data processing from a higher-level statistical bureau. The local Bureaus compile local GDP by combining all related data from the next lower-level bureaus, from other departments, and from the NBS survey teams. The local Bureaus are mainly in charge of raw data collection from firms above the cutoff level in industry,<sup>16</sup> wholesale and retail, and hotels and catering sectors as well as from construction enterprises with qualified certification and independent accounting. The NBS survey teams are responsible for sampling surveys on firms below the cutoff level in the corresponding sectors, but they are not involved in collecting economic statistics in the construction and banking, securities and insurance sectors.

This process of GDP compilation may open doors to GDP manipulation. Since local leaders are rewarded for economic growth, they have incentives to exaggerate local growth. First, because the local government has appointment authority over major personnel of the local Bureaus, the local leader’s “requests” for a higher GDP growth figure, albeit in violation of the Statistics Law, are unlikely to be rejected by the subordinate statistics bureau. In addition, it is stipulated that key data compiled by the local Bureaus, such as GDP data, should be approved by local government leaders before being submitted to the upper statistical bureau. Thus, the GDP calculation by local Bureaus is inevitably subject to administrative interference under the existing oversight structure. Second, as mentioned above, the NBS survey teams conduct sampling surveys only for enterprises _below_ the cutoff level in industry, wholesale and retail, and hotels and catering sectors, i.e., relatively small firms. Based on the available data from 11 provinces in 2010, the below-scale industrial firms only accounted

> 15 In this paper, we mainly focus on the provincial and prefectural governments and their statistical bureaus. 16 The cutoff was 5 million yuan for the revenue from principal business until 2010, and since then, it was changed to 20 million yuan.

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