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China’s Manipulated Economic Growth Won’t Fix Its Long-Term Challenges

China is taking a victory lap this week as it reports its economy grew 2.3 percent in 2020. While all other major economies, including the United States, have experienced economic contractions, China stands out as the only major economy that managed to achieve economic growth through a year marked by the global COVID-19 pandemic.

The Chinese government wasted no time exploiting the propaganda value of its economic growth rate, calling it a “win of the Chinese system.” Unfortunately, leftist media in the United States have taken the Chinese government’s propaganda at face value and parrotted its promotion relentlessly as a way to condemn the past U.S. administration. The New York Times even wants us to believe the Chinese Communist Party’s authoritarian model — which relies on mass surveillance, heavy-handed censorship, and brutal suppression of dissent — has successfully “defeated” the pandemic and offered Chinese people another version of “freedom.”

The latest economic numbers, however, by no means solidify the superiority of China’s authoritarian political model. The Chinese government’s statistics are notoriously unreliable. Falsification of data, the secrecy of methodology, and censorship of the domestic financial press are widely known. Indeed, late last year, researchers at the Federal Reserve Bank of New York presented new evidence that shows that China’s official economic data, such as its gross domestic product, is not only inaccurate but also heavily manipulated.

If we couldn’t trust China’s official economic data in the past, why should we have any confidence in China’s official economic data now? Before announcing China’s 2020 economic growth rate, the Chinese government revised China’s 2019 economic growth rate downward from 6.1 percent to 6 percent. The revision represents about a $67 billion reduction from the government’s previous calculations. Some suspect the revision could “potentially result in a larger increase for 2020 than otherwise would have been expected.”

Still, questioning the accuracy and the reliability of China’s economic data doesn’t deny that there are signs China’s economy has indeed recovered somewhat since last spring’s coronavirus outbreak. The recovery can mostly be attributed to the fact the Chinese government ended its lockdown and reopened its economy as early as last April, something many western governments are still hesitant to do even in 2021. Since China was able to reopen its businesses and factories before other major economies, exports from China to the rest of the world increased, greatly contributing to China’s economic improvement.

Despite China’s rosy economic data from 2020, however, there are many reasons to be concerned. First, since Chinese Communist Party General Secretary Xi Jinping came into power in late 2012, China’s economy slowed from double-digit growth to single-digit growth while the working-age population has declined. Some analysts project that by 2030, China will have to hire workers from abroad to make up for the loss of its workforce.

Second, as a result of more than three decades of its one-child policy, China faces an aging population. The policy, first imposed in 1979 and limiting Chinese couples to a single child, was deeply unpopular and brutally imposed — forced abortion, sterilization, and hefty fines were common punishments for couples who violated the government mandate. Now 42 years later, the policy has driven down the birth rate in China and resulted in a sex imbalance as men outnumber women by 32 million.

Reading the writing on the wall, the Chinese government is finally relaxing the policy. Since 2015, all Chinese couples are allowed to have two children if they desire, but the change has, so far, failed to create the baby boom the government hoped for.

The three decades of China’s breakneck economic growth was closely tied to its large pool of young and affordable workers, so its aging population is a huge problem. Since economic reform in the ’80s, the CCP has linked its legitimacy with growing the economy. As such, there’s been an unwritten social contract between the CCP and the Chinese people, with the majority of China’s population willingly accepting limited political freedom and mass state surveillance in exchange for material gains and a raised standard of living.

China, however, now risks losing the demographic advantage that has been the engine of its economic growth. As Mark Haas, an assistant professor of political science at Duquesne University, writes: “China alone in 2050 will have more than 329 million people over 65, which is equal to the entire current popula­tion of France, Germany, Japan, and the United Kingdom combined.”

Consequently, China is expected to be the first major economy projected to grow older before it gets richer. If trends continue, China’s economic growth will significantly slow at a time the government needs to keep its growing middle class from demanding a level of political freedom to match their newfound wealth. An aging population will also force the government to allocate more national resources to elder care and social services, meaning fewer resources will be available to compete against the United States.

China also faces long-term structural problems with its economy. For years, the Chinese government has engineered short-term growth by injecting credit into certain sectors of the economy such as housing, manufacturing, and state-owned enterprises (although many are poorly managed compared to private enterprises). This debt-fueled stimulus created a temporary economic boom but resulted in excess capacity in certain areas and an unsustainable level of corporate debt.

As of 2018, China’s corporate debt stood at 155 percent of gross domestic product, much higher than other major economies. The Organization for Economic Cooperation and Development warned Beijing such a high debt level might trigger large-scale corporate defaults.

Michael Pettis, a finance professor at Peking University, is frustrated by the overwhelmingly positive coverage of China’s economic numbers in 2020. He criticized Beijing for resorting to the same old playbook to stimulate China’s economy since the pandemic: “China’s ‘recovery’ was driven by supply-side measures, and that the economy is now more unbalanced than ever.”

According to Pettis, one of the important implications of Beijing’s approach is that “China’s debt burden must worsen significantly.” He concludes, “To say that China was the only major economy to grow in 2020, in other words, is only to say that we are unable to distinguish between GDP and the economy.”

Pettis is right. China’s manipulated economic growth rate in 2020 neither solidifies the assertion of any superiority of the Communist political regime nor its economic model, nor is it sufficient to cure the long-term challenges China faces. Rather than copying Beijing’s propaganda, Americans would be much better served by a fully reopened economy, and by implementing policies that reduce the tax and regulatory burdens that businesses face, encouraging Americans to unleash their creativity and entrepreneurial spirits.



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