China's Deceptive Economic Data

[Valin]

MEMRI

Andrew J. Masigan

September 4, 2024

Even as the world's major economies fell into negative growth when the Wuhan virus stuck in 2020, China managed to grow its gross domestic product (GDP) by 2.2 percent. Incredible!

In 2022, when the Wuhan virus made a resurgence and Xi Jinping imposed his draconian Zero-Covid Policy, China's economy still managed to grow by three percent. Amazing!

In 2023, China declared an economic expansion of 5.2% amid a debt crisis, a collapse in foreign direct investment, capital flight to the tune of $3 trillion, record youth unemployment, eroding household wealth, and weak consumer demand. Unbelievable!

How does the Chinese Communist Party (CCP) achieve such impressive growth rates on their economy despite debilitating headwinds?

A deep dive into the numbers shows how a fundamentally damaged economy hides behind favorable economic growth.

China's Spending Spree Has Been Financed By Debt

What constitutes GDP in the first place? Using the expenditure method, it is the sum of personal consumption plus private sector investments plus government spending plus exports minus imports.

In as far as China's personal consumption is concerned, we all know that it has hovered in negative territory for years due to the collapse of the property sector and consequent wipe-out of some 70 percent of household wealth. Consumption is so weak that over a million restaurants and food retailers have closed across the country. That said, we can factor out personal consumption as a driver of growth.

Private sector investments are also on the decline. Due to the CCP's restrictive policies on foreign firms and expatriates, net foreign direct investments turned negative for the first time since data was collected on FDI 25 years ago. The exact amount is unclear, but economists estimate the offload of FDIs in 2023 to be in the region of $500 billion. Private investments are not an economic driver either.

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Neither are net exports. While China enjoyed a trade surplus of $823.22 billion in 2023,[1] it was not enough to offset the combined negative impact of personal consumption and private investments.

So, this leaves us with government spending as the sole driver of growth. Indeed, government spending has fueled the Chinese economy's positive growth despite intense headwinds. And herein lies the problem: China's spending spree has been financed by a mountain of debt.