2007, Fang et al. 2019, Gehlbach and Keefer 2011), such accountability is likely limited and non-stable. Without strong accountability, local officials retain large discretion, making data manipulation feasible. _Second_ **,** the literature agrees that local governments face strong political incentives in promoting local economic growth (Li and Zhou 2005; Xu 2011). Such incentives could lead to exaggerating GDP growth to gain advantages in promotions. Given the information asymmetry along the administrative hierarchies (Hayek 1945), when facing the choices between growing the local economy and inflating growth figures, the career-concerned subnational leaders find it easier and tempting to choose the latter over the former.<sup>1</sup> _Finally_ , Weberian merit-based promotion incentives of local officials are thought to be a key factor behind China’s strong growth over decades (Maskin, Qian and Xu 2000; Li and Zhou 2005; Xu 2011). If anything, China has been viewed as the prototype of strong bureaucracy throughout history (Fukuyama 2014, p. 370). Whether such merit-based promotions are reality or myth is thus critically important for understanding China’s growth in particular and the nature of bureaucracy in general.

In this paper, we study how the performances of top local bureaucrats are measured and manipulated, and the underlying incentives of such behavior, using data of Chinese cities from 2001 to 2013. We first provide evidence that local GDP growth data are susceptible to manipulation. Using data of growth-target setting in economic plans, an annual practice for Chinese governments at all levels, we graphically show a sharp discontinuity in the distribution of over-performance above the growth target—i.e., the gap between the reported growth and the targeted growth--at the threshold of just achieving the target, which indicates “sorting” of reported figures around the target. This, combined with increasingly frequent adjustments of official GDP figures, is suggestive of potential manipulations of annual GDP growth rates. Following Henderson, Storeygard, and Weil (2012),<sup>2</sup> we then estimate the city-level true economic growth rates and the level of manipulation with nighttime lights data. We find large variations in the level of manipulation (i.e., the difference between the reported GDP growth and the predicted true growth) across cities and years during 2001-2013.<sup>3</sup> To understand the motivations behind bureaucrats exaggerating GDP performance, we examine how it is related to their career incentives. We first show whether career incentives related to political

> 1 The evidence on GDP manipulation in China is inconclusive. On the one hand, many have cast doubt on the credibility of Chinese official GDP data, offering evidence of manipulation (Adams and Chen 1996; Rawski 2001; Maddison and Wu 2006; Ma et al. 2014; Lyu et al. 2018; Chen et al. 2019). On the other hand, there are also studies that fail to find evidence of data manipulation, and claim that the Chinese data are accurate (Perkins and Rawski 2008; Mehrotra and Pääkkönen 2011; Holz 2014).

> 2 Researchers now often use nighttime luminosity as a measure of real economic activity. For example, Martinez (2019) demonstrates that night-lights elasticity of GDP is systematically larger in non-democratic countries relative to democratic countries, suggestive of manipulation. See Donaldson and Storeygard (2016) for a comprehensive discussion. 3 However, as detailed in section 4, due to its derivation from a regression-based framework, our measure of manipulation should be interpreted in _relative_ terms. We do not focus on the absolute extent of GDP over-reporting or under-reporting; we instead focus on the relative extent of GDP manipulation across regions, and the underlying incentives.

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