China is stretching shrinking growth to the limit

China’s economy to the outside world is often seen through the prism of Communist Party propaganda. Blurred beyond recognition, it is regularly distorted to reflect the policy targets of President Xi Jinping’s regime. Figures should never get in the way of flights of fancy.

During the past three years, official annual growth goals have hit 5%, despite widespread skepticism from influential economists. Disappearing data has only added to the mind-numbing numbers coming out of the National Bureau of Statistics.

“A prominent Chinese economist once told a Washington forum that China’s official growth rate ‘will always be around 5%,’ regardless of how grim the reality looked on the ground,” Lingling Wei, the chief China correspondent for The Wall Street Journal, pointed out.

“Gao Shanwen was effectively muzzled for that bit of candor, but his logic has aged uncomfortably well,” she wrote earlier this week in her WSJ newsletter.

Dodgy data:

• The charade of Beijing’s numbers game is nothing new. But it comes at a time when the domestic economy is in serious trouble after a crippling property crash in 2022.
• Spending has been strangled by high unemployment among the young, anemic consumer demand and evaporating household wealth. Stagnating salaries have added to the gloom.

Local governments [face] ballooning debts of up to … US$11 trillion.

Delve deeper: “[Yet, ] Beijing has defied the laws of economic gravity, reporting growth that has unfailingly hovered around 5%. It’s a statistical miracle performed against a backdrop of a deflationary spiral, and the West striving to uncouple from Chinese factories,” Wei said.

Between the lines: “In fact, as a senior Chinese policy adviser explained to me recently, that 5%-or-so figure has become a political straitjacket,” she added.

Big picture: At the heart of the problem is Comrade Xi’s boast in 2020 that China would double the size of its economy and per-capita income by 2035. Now, it is a question of “how much money” he is “willing to burn to keep the economy from sliding.”

Bottom line: In turn, this will increase the pressure on local governments. Last year, a report revealed that they were facing ballooning debts of up to an estimated US$11 trillion. In November, Beijing ordered a “debt reckoning” amid crippling repayment levels.

China Factor comment: How that will turn out is open to conjecture. But without a massive rebound in domestic spending, the omens look ominous. As does the push for 5% growth in the next 12 months, without fiddling the figures.