For decades, China suffered a cult of personality dictatorship, claiming progress while likely accounting for half the worldâs population of extreme poor. Is Xiâs China reverting to Maoâs China? Well, no. Chinese personal income near $5800 (official) is mid-tier globally. But the dictatorship, harsh economic policies, and mendacity are familiar. Chinese economic claims are hard to credit because policy is poor and transparency worse.
The standard problem with official data is internal contradiction. Thereâs some of that. The National Bureau of Statistics offers its usual paean to Xi Jinpingâs wisdom, then reports reaching the five percent GDP growth target. Of course. Thank heaven growth accelerated to 5.4 percent in the fourth quarter. The full-year and fourth-quarter results may have been determined by working backwards. Start with the five percent result and calculate whatâs needed to get there.
China has never provided arithmetically sensible figures on the relation between GDP and its components. But the raw size of the 2024 goods trade surplus, 7.15 trillion yuan, compares all too favorably to a total increment to GDP of 5.49trillion yuan. Purely internal economic activity was comparatively meager last year.
The health of the economy might be best reflected in prices. The GDP deflatorâthe difference between nominal and real growthâwas -0.8 percent. Consumer inflation was +0.2 percent. These fit GDP expanding at a 0.5 percent pace better than 5.0.Â
Official GDP growth is exaggeratedânot news. Whatâs news is intensifying attempts to rig the data process so 2025 can see more exaggeration, if needed, and definitely less accountability. Rather than promoting data quality, which would be natural in a successful economy, China has taken deliberate steps toward worse quality. The most overarching is repeated warnings to analysts to toe the party line, or else.
As a personal matter, having dealt for 25 years with alleged experts rushing to distort Chinaâs performance, itâs alarming to think mere implicit coercion constituted the good olâ days. And thereâs other suppression. One of the better ways to assess GDP growth has been through narrow money M1, which measures funds used in the transactions that make up GDP. Outright drops in M1 over 2024 were difficult to reconcile with GDP claims.
The governmentâs solution is to retroactively change measurement of M1. The specific changes dampen M1âs movement and make it easier to manipulate. The series sharply improved in the fourth quarterâwith no corresponding evidence in bank loans or anywhere elseâand those pesky contractions will soon be defined away. Success!
GDP itself was revised higher, chiefly in 2023, using a national census. Itâs a large boost, but plausible. Part of the rise stems from a new assessment of housing services, which is troublesome because itâs trivial to fudge. But the main problem is revisions came with a disclaimer that growth is unaffected. The same 2024 results previously reported are now on top of a notably bigger base, yet growth is magically untouched.Â
Those revisions are trillions of yuan, NBS recently completed revisions of tens of trillions. Its 2024 yearbook published 2017 fixed asset investment as 39.49 trillion yuan. The 2018 yearbook had it at 64.12 trillion, a gap equivalent to 30 percent of 2017 GDP. No accompanying GDP revision. Whatever China says today, it can say something very different tomorrow. The only constant is everything is always fine.
One reason 2025 may be fine is stimulus. The government can just decide to alter the numbers and avoid the messy process of still more leveraging. But foreign commentators will clamor for Beijing to dig further into the debt ditch, perhaps so they can escape awful China equities positions. The government can again goose the stock market for a bit.
Xi can even reverse course and partly re-inflate the property bubble, yielding a stronger 2025. The catch, other than him being politically liable for past real estate pain, is stimulus via property wonât last because market participants are too frightened. The usual supply stimulus through banks will work for only a few quarters, and intensify disinflation. China has never seriously tried to boost consumption and hasnât even offered plans to do so at scale.Â
Beyond deteriorating data quality, the main issue is the only policy recourse seems to be yet more borrowing. Then what? Borrowing is supposed to be a bridge over troubled waters to a robust economy, with vibrant growth engines. China has no engines in sight for faster growth, leaving borrowing a bridge to nowhere and 2024 very possibly as good as it gets.
Derek Scissors
January 18, 2025
aei.org