China released the stats for Q3 2022, and the reaction in the US was predictable. After hyperventilating for a week about why the release of data was delayed, Americans on social media were unanimously screaming that the numbers were fake! How can China’s quarterly GDP grow at 3.9% when there numerous problems such as COVID shutdowns, real estate slowdown, and even a banking crisis! However, this is not a new phenomenon. “Fake China GDP” or “Fake Chinese stats” has been a common trope among Americans for a long time. This is a mix of some truth and American delusion. Let’s take an objective look.
Incentives For Fudging
The local governments have a lot of incentives to fudge/falsify all kinds of statistics for various reasons. For example, the local leaders may exaggerate the GDP so they can get promoted; or they may lie about the number of children to get more funding from the central government.
In 2017, Liaoning province admitted that it had been cooking numbers for four years (2011-2014)! In 2021, China’s National Bureau of Statistics (NBS) found that party leaders in various cities were ordering local companies to report certain targets of growth — regardless of the facts on the ground. In a group chat, politicians would say something like, “You should report X% of growth or Y billions of Yuan in revenue this year.” Quite stunning.
In 2022, Beijing punished numerous local officials for falsifying data.
So, we know that fake data can be a problem. However, here’s the good news: Beijing has its own statistical tools, models and surveys, which help correct the data from the local governments. However, let’s say that there is a problem.
Stats that CANNOT be fudged
Here are some critical statistics that China cannot fudge even if it wanted to. And these are key stats that indicate GDP and growth.
- Exports and Imports (these numbers are verified by other countries as well. For example, the EU and the US publish detailed data on how much they trade with China)
- Wages and cost of living (Foreigners living in China, foreign journalists, and foreign corporations operating in China can give precise data)
- Retail Sales (Almost every popular Western brand has physical stores in China. Tens of thousands of Western brands sell through China’s e-commerce sites such as Alibaba and JD.com. Thus, the retail market and its growth can be accurately measured)
- Infrastructure data (US satellites can precisely measure the lengths of China’s high-speed rail, expressways, seaport traffic and so on. Others like skyscrapers can be easily verified by US journalists)
- Middle-class and upper middle-class wealth and spending (All those foreign luxury stores and foreign investment companies — JP Morgan, UBS, Credit Suisse, Goldman Sachs and so on — operating in China have their fingers on the pulse of Chinese wealth). Other indicators are things like international tourism. For example, in the last 20 years, the number of Chinese traveling abroad increased 16-fold, which is almost the same as the official GDP growth.
- Manufacturing, for the most part (big items like automobiles, trains, ships, planes etc. can be easily verified. Others like steel, cement and electricity can be deducted through other economic activities)
Western Corporations Operating in China
The problem with US media and pundits is that they use these problems to jump to sensational claims to reject all Chinese stats as fake news. However, here is the catch: The West has a very good idea about China’s economy. Why? There are thousands of Western corporations operating in China. This includes all kinds of corporations — Tesla, JP Morgan, Apple, Nike, KFC, Prada, Calvin Klein, Marriott etc. There are literally thousands of Starbucks and McDonald’s in all the provinces, cities and rural towns of China.
Thus, American corporations know everything about the Chinese economy — wages, prices of all types of goods and services, inflation, size of middle class, consumer spending patterns etc. And by just looking at the growth in the revenue of these companies, you can have a pretty accurate estimate of GDP growth.
As for imports/exports data, they can be easily verified by data from other countries. And the foreign exchange reserves data cannot be faked for obvious reasons — the money is deposited in US/EU banks.
Let’s not forget that here are hundreds of thousands of expats living in China; and consider that, in 2019, whopping 162 million foreigners went to China for tourism and work. Finally, there are also journalists from 1000 or so foreign media stationed in China.
So, let’s not make China into a closed society like North Korea or the Soviet Union during the Cold War.
Why China Would Report LOWER Growths and GDP
Here’s a fascinating incidence. In 2015, the IMF said that China had surpassed the US in PPP GDP.
Two countries vigorously protested the finding and methodology! The first country was the USA. Because it always wants to be #1. Guess who the other one was?
It was China! Why? It didn’t want to become a target of America’s containment!
Anyone with a basic understanding of geopolitics knows that the US would try to sabotage whoever is #2 and a rising power. So, if you were China, would you report smaller numbers than the truth or exaggerate the GDP? This is why Deng Xiaoping famously said that China should hide its strength and bide its time.
Many Chinese had forgotten that advise, though. That’s why ZTE and Huawei proudly announced in 2019 that they were the first ones in the world to come up with 5G smartphones. What happened? Vicious US sanctions, which have crippled those two companies. Huawei was forced to kill its smartphone division.
My suspicion is that China has been under-reporting its growth for a long time. But now I am 100% certain that, moving forward, China will be “reverse lying” — i.e., playing down or hiding all sorts of good news about its economy and scientific achievements. So, if China says that its Q3 GDP grew at 3.9%, my guess is that the real number was 4.2%.