Last Saturday, the Chinese official data for August, including industrial output, fixed investments, and retail sales of consumer goods, fell short of market expectations, with a slower growth rate compared to July. International investment banks have successively lowered their forecasts for China’s economy this year, believing that it may struggle to achieve a 5% growth as set by the Chinese government. Several experts have pointed out that due to the increasing opacity of the Chinese Communist regime in recent years and its history of data manipulation, the actual state of the Chinese economy may be worse than reported.
The data released by the Chinese National Bureau of Statistics on Saturday, September 14, showed that industrial value-added for August increased by 4.5% year-on-year, marking the slowest growth rate in nearly five months. Retail sales of consumer goods rose by 2.1%, while fixed-asset investment for the first eight months of the year hit a low growth rate of 3.4%, all falling below market expectations.
Furthermore, China’s urban surveyed unemployment rate reached 5.3%, the highest in six months.
In recent days, European and American investment banks have lowered their forecasts for the Chinese economy. Bank of America lowered its economic growth forecast for China in 2024 to 4.8%, below the government’s 5% target. Nomura Securities adjusted its forecast for China’s economic growth this year from 4.8% to 4.7%. Citigroup also revised its growth forecast down to 4.7%. Goldman Sachs reduced its growth forecast by 0.2 percentage points to 4.7%, the first downward revision since July.
Morgan Stanley lowered its projection for mainland China’s economic growth by 0.2 percentage points to 4.6% for this year, further dropping to 4.2% next year. It believes that the debt issues and the vicious cycle of deflation will worsen from September to the end of this year, beyond the support provided by the loose monetary measures.
David Wong, an economist in the United States, commented that the released data from the Chinese authorities indicated that the overall economic stimulus policies have not been effective. Factors contributing to this include China’s support for Russia in the Russia-Ukraine conflict leading to strained relations with Europe and the U.S., resulting in higher tariffs for exporting goods to these regions and the forced relocation of industrial bases. Additionally, both the stock and property markets in China are weak, casting uncertainties over the economic outlook.
He believes that China is facing stagflation, where the scope for future monetary policy maneuvers is diminishing. The only solution lies in reducing taxes, increasing social welfare, enhancing management efficiency, but due to the limitations of the Chinese political and economic systems, the leadership is unlikely to take such measures.
Since last June, Xi Jinping and top officials in the Chinese propaganda system have often mentioned “singing the bright economic tune.” Official actions tightening political and economic information have increased in recent years. Data related to economic indicators like land sales, foreign exchange reserves, and bond trading have been restricted. In August, the real-time trading data representing foreign capital in the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect channels were no longer made public, making it more challenging to observe the situation of foreign capital withdrawal from China.
Due to various Chinese Communist Party policies in recent years, many international investment banks have significantly downsized their China operations. Wong stated that the lack of transparency and accuracy in Chinese data makes it increasingly difficult for these international institutions to evaluate China’s economy accurately, resulting in less precise data analysis. This may have contributed to Goldman Sachs and Citigroup’s downward revisions of their forecasts.
Wong noted that Western institutions often struggle to fully grasp the complexities of the Chinese economy as they tend to assess it from a Western economic perspective rather than understanding the underlying operating rules of the Chinese socialist market economy.
“The reality now is that while the state-owned economy is thriving with increasing monopolies and other non-tax revenues, the private sector is declining.”
The Chinese National Bureau of Statistics reported a national urban surveyed unemployment rate of 5.3% in August. Wong pointed out that China’s non-urban population is substantial, and the authorities’ stringent calculation criteria for the unemployment rate starkly differ from international standards. In reality, the underemployment rate in China could exceed 25%.
Last June, the unemployment rate among young people aged 16 to 24 in urban areas in China hit a record 21.3%. At that time, experts predicted a continued increase in the unemployment rate by the time of the 2023 graduates. Since August last year, the Chinese government no longer released this data. Starting January this year, the employment data released no longer include full-time students.
Sun Guoxiang, an associate professor in the Department of International Affairs and Business at Nanhua University in Taiwan, mentioned that the forecasts of international investment banks regarding the Chinese economy are usually relatively accurate. Recent downgrades in China’s economic growth forecasts reflect significant challenges faced by the Chinese economy, indicating a need for policymakers to adopt more stimulating measures.
He pointed out that while the official positive growth data suggest some expansion in the economy, some sectors may already be experiencing negative growth, such as in solar energy and photovoltaic panel industries. The actual economic situation might be worse than portrayed since Chinese statistical data often get influenced by government policies, raising concerns about the growth figures reported by various provinces.
“Especially in sectors and industries highly prioritized by the Chinese Communist Party, data could easily be manipulated to avoid any displeasure from top leadership, making the situation particularly severe.”
The Chinese Communist Party’s announcement of a 5% economic growth target at the beginning of the year had prompted skepticism from observers. Sun mentioned that international criticism of China’s lack of transparency makes it challenging to accurately assess the true economic conditions, weakening the significance of the target due to doubts about its reliability.
“Therefore, in the current situation, the economic growth figures may have more symbolic than substantive meaning and completely fail to reflect the current real state of the Chinese economy.”
Some banking experts believe that China urgently needs to adopt more loose measures in terms of demand. However, Premier Li Keqiang had previously mentioned the need to avoid drastic measures, while local governments faced challenges in implementing directives to contain housing prices.
Sun indicated that the leadership in Beijing is likely concerned about both the long-term effects of excessive stimulation and the difficulties in implementing policies effectively at the local level. Under Xi Jinping’s ideological governance, the economic predicament in China seems insurmountable.
Regarding the comparison between the U.S. and Chinese economies, Wan-Jun Qiu, a professor of finance at Northeastern University in Boston, mentioned that a significant portion of the U.S. economy comes from private expenditures, accounting for nearly 70%. In contrast, private spending in China makes up less than 40% of the overall economy, with the largest share going to investments, mainly related to state-owned enterprises, at around 40%.
Qiu believes that China’s current investment and consumption confidence is declining, with fixed capital investment at 3.4% for the first eight months pointing to severe economic challenges in the country.
He noted that an excessive focus on investments by the authorities, neglecting private consumption, could lead to a lack of confidence in economic prospects, inadequate domestic demand, and unresolved deflation issues, which may persist.
Qiu maintains that using the economic growth rate as a benchmark for studying China’s development holds little significance from the perspective of national welfare.
He explained that while the Chinese government can push the economic growth rate higher by increasing government expenditure or leveraging investments from state-owned enterprises and entities under its influence, these investments may not necessarily yield meaningful welfare benefits for the general populace.
“To truly improve the well-being of the people, it’s essential to focus on social infrastructure, such as social insurance, elderly care, family assistance, healthcare system improvements, educational enhancements, and the like.”