Is China’s Economy Overestimated? – Counter-Evidence from the Underground Economy

Wang Yongxing (王永兴)
School of Economics, Nankai University, Tianjin, China

Abstract: Over the past four decades of reform and opening up since 1978, China’s
GDP has been growing at 9.5% on an annual average basis. While some scholars believe
that China’s economic growth is systematically overestimated, this paper carries out an
estimation of China’s underground economy and finds that due to the existence of the
underground economy, China’s real GDP is systematically underestimated. China’s official
GDP statistics generally reflect a real picture of its economic growth. The size of China’s
underground economy is significantly influenced by total electricity consumption, the selfemployed
ratio, labor participation rate and money supply. These findings are of great
significance for policy-making.

Keywords: underground economy, latent variable, cash ratio model, multiple indicators
multiple causes (MIMIC) model

JEL Classification Codes: I32, P36, P36
DOI:1 0.19602/j .chinaeconomist.2019.5.03

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