How bad is it? Even Premier Li Keqiang doesn't believe in the numbers, according to a confidential memo sent by the US Ambassador Clark Randt that was published by Wikileaks.
Li basically said when he evaluated Liaoning province's economy, the only digits he followed were those from electricity consumption, rail cargo volume and bank lending.
But now even the National Bureau of Statistics is outright saying the figures it gets from provinces and counties are grossly exaggerated.
One example is the economic development and technology information bureau of Henglan, a town in Guangdong province.
A state statistician investigated a sample of 73 firms out of 249 in the data and found 38 of them were too small to be considered large firms so they should not even be included, and a further 19 either stopped production, moved to another town or ceased to exist.
But here's the more damning part -- 71 companies examined by the statistics bureau had an industrial output of 2.22 billion yuan ($362 million) in 2012, but that the local government recorded it as being 8.51 billion yuan, almost four times the actual figure.
What's sketchy is that the firms were supposed to input the data in an online platform, but for some reason staff from the Henglan economic development and technology information bureau input the numbers themselves. Also, relevant government leaders knew about the distortions but chose to ignore them.
And now with the economy slowing down, local governments are keen to look good because economic output affects their chances for promotion.
But what about when they grossly overstate the figures by almost four times?
The NSB was able to discover the exaggerated figures thanks to a whistleblower. But what about other jurisdictions, counties and provinces?
So you have to wonder, is China really the second-biggest economy in the world?