The Chinese Communist Party appreciates American media praise. Yes, China halted COVID-19 and engineered a clear economic recovery. But the party has always denied or distorted major mistakes. Last year it lied about initial virus spread and, consequently, about initial economic contraction. Its full-year claims, topped by 2.3 percent real GDP growth, are therefore suspect. GDP likely dipped, or just signifies something other than prosperity.
In 2020, faced with grave and complex environment both at home and abroad and the huge impact of the epidemic in particular, under the strong leadership of the Central Committee of the Communist Party of China with Comrade Xi Jinping as the core, all regions and departments adhered to the general working guideline of making progress while maintaining stability, coordinated the work of epidemic prevention and control and economic and social development, took solid steps to stabilize employment, finance, foreign trade, foreign investment, domestic investment and market expectations (six areas), and fully safeguard residential employment, people’s livelihood, market entities, food and energy security, stability of industrial and supply chains and operations at grassroots levels (six fronts).
Given the words from the National Bureau of Statistics (NBS), it’s not surprising numbers can be strange. China is known to smooth downturns, and did so in April. COVID-19 and national lockdowns imposed in February could not delay the gathering of first-quarter data, which appeared in their usual two weeks. Nominal GDP fell only 3.3 percent.
Yet industrial and services production indexes, themselves unverifiable, were said to fall 8 and 9 percent, respectively. The expenditure side saw fixed investment drop 16 percent, retail sales 19 percent, and net exports 80 percent. The GDP figure only made sense if the rest didn’t. A more accurate nominal decline of at least 8 percent would shift 2020 performance into the red (while making the recovery sharper).
There are many more discrepancies. To its credit, the government published surveys of firms reopening and returning to normal. But these could not be arithmetically reconciled even with the weak industrial or services production at the time, and were then suppressed.
Corporate invoices officially shrank five times faster in the first quarter than nominal GDP, a result replicated in a large independent survey (by a firm I’m associated with). The independent survey found corporate recovery over the year, but not back to the level of 2019. The first-quarter government invoicing report was not repeated.
It’s not just the rough start. In April, a Chinese brokerage had to retract a high figure for unemployment that fit widespread lockdowns. Six months later, everything was fine and had always been fine. New urban job creation was said to average about 1 million for August, September, and October and somehow almost 1 million monthly overall. A jobs target set assuming 6 percent GDP growth was achieved early with 2.3 percent.
Fixed investment sees the biggest quantitative mystery. The 2020 volume and growth figures indicate 4.9 trillion yuan in 2019 fixed investment was revised away. GDP was later revised down by less than 500 billion yuan, what happened to the rest? Monthly totals for fixed investment were removed from the NBS website. If you can do this, you can have any results you want.
Oddities extend beyond national accounts. The signing of new overseas engineering contracts showed double-digit on-year growth through May and started to decline only in October. Overseas direct investment rose through October with remarkably stable monthly volumes all year, another result that cannot be independently documented.
As usual, demand is most vexing. The soaring trade surplus confirms China’s unmatched export competitiveness. But it is unhealthy for an ostensibly world-beating economy to not import more from weaker partners. Though the economy is supposedly booming now, consumer prices are fading, with the December index rising only 0.2 percent and core consumer inflation touching record lows in the second half.
A partial explanation is buried in a key official statistic, at odds with GDP. In the first three quarters, urban consumption expenditure fell 8.4 percent in real terms. GDP growth was 0.7 percent — what grew 10 percent to offset plunging spending? Urban expenditure did recover sharply in the fourth quarter to a 3.8 percent decline. But this again had a minimal impact on prices and employment.
A comparison may help. Chinese per capita disposable income climbed 4.7 percent to about $4700, officially. American disposable income per capita is comparable, with a bit of a stretch. It rose 3.8 percent through November to about $52,000. The US figure is boosted by an unsustainable amount of government support. On the other hand, the US COVID recovery is still pending.
It’s probably much to ask to treat them differently — after all, they both are labeled “GDP”. But if China’s booming economy doesn’t make much sense numerically and yields a 4.7 percent income increase and America’s “spiraling” economy yields a 3.8 percent income increase, maybe they’re not actually measuring the same things.
To read the original blog post from AEI, please click here
Derek M. Scissors is a resident scholar at the American Enterprise Institute (AEI), where he focuses on the Chinese and Indian economies and on US economic relations with Asia. He is concurrently chief economist of the China Beige Book.