“How does China grow 5% despite so many headwinds, from collapsing property investment to declining population?” Greg Ip asks in the Wall Street Journal. “Very likely, it doesn’t. Actual growth is probably slower, perhaps a lot slower.”
China’s economic data were likely never trustworthy, but the gap between statistics and reality seems to be growing:
New York-based Rhodium Group has studied China’s data for years and concludes it vastly overstates recent growth. Rhodium estimates China’s output shrank in 2022, when Covid lockdowns were most widespread, instead of growing 3% as official data claim. It puts growth last year at around 1.5% instead of the official 5.2%.
The Chinese National Bureau of Statistics (NBS) also revises data to make growth look bigger than it really was. It waits a year, then revises down the previous year’s numbers to increase year-over-year growth statistics. “In December, the NBS revised down the level of nominal GDP in 2022 by 0.5%, which served to boost growth in 2023, yet it kept growth for 2022 at 3%,” Ip writes.
These revisions can sometimes appear as lies. Ip writes, “In separate reports NBS put fixed-asset investment at 57 trillion yuan in 2022 and 50 trillion yuan in 2023. But instead of reporting that investment dropped 12% in 2023, the NBS said it grew 3%.”
The NBS’s excuse for this is that it doesn’t survey the same projects every year, so the fixed-asset investment data can’t be used to make year-over-year comparisons. But then what’s the point of the data?
Specific anomalies aside, the quality of China’s economic data is low. It’s not for lack of competent statisticians or government manpower. China could collect economic data up to international standards if it wanted to. Ip writes, “Where other statistical agencies strive for political neutrality, China’s routinely praises the Communist Party ‘with Comrade Xi Jinping at its core.'”
For years during the Cold War, many in the United States overestimated the economic growth of the Soviet Union. That mistake convinced many that the Soviet Union was on the path to become a true peer economy.
One of the worst examples was from the top-selling economics textbook written by Paul Samuelson. As Tyler Cowen recounts in his recent book GOAT: Who is the Greatest Economist of all Time and Why Does it Matter?
In the fifth through eleventh editions of the text, starting in 1961, the book stated that the Soviets had higher growth rates and presented a graph showing them catching up and indeed surpassing living standards in the United States, over the course of somewhere between 23 and 36 years. In the twelfth edition it was stated that the Soviet economy grew an average of 4.9 percent between 1928 and 1983. For the 1989 thirteenth edition, co-authored with William Nordhaus, it was written: “the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.”
Within government, Daniel Patrick Moynihan alleged that the CIA vastly overestimated the size of the Soviet economy for years. The CIA refused to cooperate with a 1991 GAO investigation into its estimation methods, but the GAO nonetheless concluded that the agency had overstated the size of the Soviet economy relative to the American. A 2018 assessment from historian Marc Trachtenberg finds that the CIA’s estimates were not as far off as Moynihan alleged. But especially in the earlier years of the Cold War, before the mid 1960s, many in government thought the Soviets would close the gap and eventually overtake the U.S. economy.
Such predictions are then used domestically to promote big government. If our adversaries are authoritarian and they can grow fast, we might need a little authoritarianism to compete with them, the argument goes.
In reality, it was China’s limited introduction of free markets that allowed it to experience genuine economic growth, and it is the increase in government control now that is slowing growth and creating reasons for it to lie with statistics. The U.S. is beating China economically, and the challenge for policy-makers is in dealing with a China in decline.