Intelligence: Night Moves

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June 11, 2018: It was only a matter of time before the increasing availability of commercial photo satellite photos, and the increasing resolution, made it possible for economists to gather more accurate economic data about nations that were known to provide unreliable statistics. Major offenders include China, Russia and North Korea. The answer came in the night.

In the last few years, there have been several studies which used satellite photo activity over time to find a correlation between what the photos were showing and what official economic statistics were saying during the same time. The most basic of these studies used the amount of light nighttime satellite photos showed over time and compared the increases in this light with reported GDP growth (or decline). In the West, where GDP data is more accurate because it is open to more scrutiny, it was found that for every 10 percent increase in nighttime light there was an increase in reported GDP growth of 2.4 percent. But in nations with less reliable (and verifiable) data a 10 percent increase in light yielded a reported GDP growth of 2.9-3.4 percent.

This research is most meaningful for China, which now has the second largest GDP in the world. There are enough verifiable statistics (especially when it comes to foreign trade and international banking activity) to verify that China now has a huge, and probably second only to the United States, economy. But accurate data on annual GDP growth is crucial in determining the health of the Chinese economy and what vulnerabilities it has.

For example, Chinese GDP growth has been slowing since 2010 and that trend will continue. The question is how much of the GDP growth, especially as it is declining, is accurate. For China, the slowdown is mostly about how the decades of development are over. Most of the missing (because China did not go through the Industrial Revolution until the late 20th century) infrastructure (road, ports, dams, utilities, housing) have now been built. Another major factor is government corruption which often leads to unneeded infrastructure projects that are often poorly built. Yet the government feels that it still needs inflated economic performance numbers to justify its continued dictatorship (of the Communist Party).

The Chinese government was forced to admit that the decades of 10 percent a year GDP growth were over and appears to have settled on 6-7 percent a year being the acceptable new normal. But foreign analysts see five percent or (and eventually) less as the reality and a catastrophic economic collapse (because of mismanagement of the banking system) still a possibility.

China is aware of the fact that inaccurate economic data is an internal problem as well as an international one. The Chinese realize that the old problem of corruption within the government, especially when it comes to accurate economic statistics, is something that should be addressed. The unreliable government statistics were long an open secret that did not seem to matter. That has changed, especially since 2010. Often details of that change are made public.

For example in early 2017 Wang Baoan, the head of the Chinese National Statistics Bureau was convicted on corruption charges and sentenced to life in prison. The prosecution was mainly about crimes committed earlier (1994-2016), mostly before he became Bureau chief in 2015. Wang Baoan, a career bureaucrat, became a very wealthy man (over $22 million in all) by accepting bribes and other favors. Most worrisome was his last post, running the scandal plagued National Statistics Bureau, which is believed to knowingly distribute falsified economic data for decades because no one in power wanted the complete truth, just enough to make them look good. 

A growing number of economists and corrupt government officials have seen changes coming because it was becoming easier for more people to scrutinize details of economic activity. This was most obvious when it came to public availability of satellite photos and other data. In the 1990s commercial photo satellites began providing more photos of the earth to anyone who could pay. The general public got access to similar data after Google Earth was introduced after 2001. Before that satellite photos like this were considered military secrets and only rarely released. This led to many changes but the basic one was it became more difficult to lie about what was, literally, happening on the ground and visible from space.

The truth is out there, often in the darkness.

 


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