WASHINGTON – We all know that China’s economy is slowing down. The Chinese government itself announced this. What we do not know, however, is how significant the slow down is, and what exactly is causing it. Is this a small issue, or is it a big, systemic problem just beginning to manifest itself? Who knows really. And much of this uncertainty is due to the fact that we cannot rely on the information released by Beijing about China’s economic performance.
A little slow down
Chinese officials calmly admit that GDP growth at 6.9% is a little less than the 7% they expected. And they have recently hinted that probably next year growth will be a bit lower. May be 6.5%. Premier Li Keqiang said this much during a recent visit to Seoul.
What we are told is that this gentle slow down is part of a general reconfiguration of the Chinese economy. Under the expert guidance of the Communist Party, China will gradually move away from its traditional reliance on large-scale investments and exports, while more consumer spending will be encouraged. At the same time there will be more innovation, more green initiatives and improved sustainability.
The message from Beijing is simple and reassuring. All is well in China. May be a few adjustments will be needed. But all is going well, and according to plan.
Not true
Yes, except that most likely none of this is true. According to some Western analysts, China is on the verge of a major collapse. They have created a gigantic, debt-funded bubble that is about to burst. There is monstrous over capacity in every major industrial sector linked to construction. There are tens of thousands of empty buildings. Several state-owned corporations are losing money; but they keep going thanks to easy financing coming from state-owned banks. Is this an exaggeration? May be.
Discrepancies
Still, as a minimum, the optimistic official GDP numbers collide with other official Chinese figures related to electricity consumption, (down), cement production, (down), and steel production, (down). Hard to believe that China manages to keep the same rate of GDP growth when key indicators that should move up along with GDP are instead going in the opposite direction.
And there is more. The Singapore economy, a good proxy for what is going in China, is down, significantly. Recent export data from South Korea show a huge drop. Simply stated, China is buying a lot less from a key supplier. Not an indication of a growing Chinese economy.
Well, what is the point of all this? There are two points, actually. The first one is that the deterioration of the Chinese economy is most likely a lot more severe than anything that has been officially admitted.
False data routinely released
But the second point is probably even more significant. China clearly releases false economic statistics, and it has been doing this routinely, for who knows how long.
Now, this is no detail. This is not akin to the White House Press Secretary trying to paint today’s events in a favorable light that will make the US President look good. We call this spin. Not laudable, perhaps unethical, but not utter fraud.
However, what China does is akin to the White House Press Secretary announcing from his podium that the US economy grew at a rate of 2.5% when it grew instead by only 1.5%. He goes out there, speaking to the nation, and he knows he is lying. There is a distinction between spin and falsehood.
And yet we accept that China does this.
Unprecedented
This situation is unprecedented. After 30 years of impressive growth, China wants to be treated as a mature world power and a major economic player, now fully integrated in the world economy. This is not a country akin to the old Soviet Union that lived in its own universe. And this is not Mao’s China either, a country run into the ground by its leader’s bizarre ideology. And yet the government of this modernized and vastly more productive China lies about fundamental economic data. And how do we react to this?
Well, we do essentially nothing.
Look, I realize that this is an awkward situation, and that there is no easy solution. How do you say this? Well, for the moment we do not say it. Indeed, as far as I know, no Western Government is on record stating that the Chinese release false or at least not fully reliable data. Ditto for the IMF or the World Bank.
Business media reporting on China
And what about Western business media? Well, they are becoming a little more assertive about producing the evidence and the work of private forecasters and analysts that contradicts official Chinese data. Almost all China watchers agree that China overstates its growth figures. The disagreement is on the degree of the lie. Some argue that real GDP growth is 6% and not 7%. Other claim that it is even lower, may be 5% or even 4%.
But the media are careful in how they phrase all this. They know that this is potentially an explosive issue. Think of the consequences. Does The Wall Street Journal want to see its Beijing bureau closed down, and its correspondents expelled from China, guilty of producing slanderous stories about China? Probably not. Hence extreme caution when reporting on any analysis of Chinese official data.
A major economic player?
That said, all this is absurd. The fact is that no one believes the official data. But it is not polite to say this openly. Talk about the Emperor having no clothes.
So, here is the thing. China wants to be treated with respect. And yet it behaves just like the old Soviet Union when it comes to releasing false data and distorted information. All this smells just like the old-fashioned Communist propaganda. And what do we do about this? Essentially nothing. We listen to the releases, and we politely nod.
Sure enough, in private government leaders and financial analysts make calculations based on what they believe is really going on in China, or at least I hope this is what they do.
But in the meantime most mainstream media keep publishing or airing the false data released by Beijing, in most cases without any cautionary note about the reliability of these figures.
Transparency
As the terrible crash of 2008 revealed, here in America we got into major trouble because people chose to overlook alarming signs. And this happened in a country with a lively free press and hundreds of capable analysts, not to mention laws that require detailed disclosures and full transparency.
The idea that we can deal with China as a regular business partner when we have no clear understanding as to what is really going on in this vast economy simply because we cannot trust official data is totally preposterous.
Basic rules apply to all, China included
At some point the Chinese need to be told that rule number one for those aspiring to be at the head table in the global economy is full transparency and publishing accurate information.
Somehow the Chinese believe that they have become so big and so important that basic rules do not apply to them.
They should be told otherwise.