China’s economic picture grows murkier in Xi’s ‘new era’

Xi Jinping

For the past quarter-century, China was run by a well-oiled government bureaucracy that predictably focused on the economy as its top priority.

That may no longer be the case.

Xi Jinping, China’s top leader, made clear on Sunday at the opening of the Communist Party’s national congress, a twice-a-decade gathering of the country’s ruling elite, that politics and national security were paramount. That point was reinforced the next day when Beijing made the unusual move of delaying what should have been a routine, closely stage-managed release of data on how the economy fared in the past three months.

“It does show the primacy of politics in influencing the very competent, institutional technocracy that China has,” said Victor Shih, a specialist in Chinese elite politics and finance at the University of California at San Diego.

“The very likely reason the numbers were delayed was the State Council leaders were afraid the numbers would detract from the triumphant tone of the party congress,” he added. The State Council is China’s Cabinet.

It is extremely rare for any large economy to delay the release of such an important economic report. The data included not just China’s economic growth from July through September, but also the country’s factory production, retail sales, fixed-asset investment and property prices for September.

Xi, who is expected to claim a third term in power, has sought to project confidence in China’s outlook. On Monday, a Chinese economic planning official reiterated the Communist Party’s talking points about how well China’s economy was faring, saying that it had improved in the last quarter.

But that optimistic message was quickly undercut by news of the delayed release of gross domestic product data. Reporters who called government employees Friday and Monday about the economic data release were told they had no information.

Contacted again late Monday afternoon, the workers said only that the release had been postponed indefinitely. The National Bureau of Statistics still has not explained the delay or announced a rescheduled date. On Friday, the government also failed to release data on exports and imports for September and has not said when it would do so.

China’s refusal to provide statistics, combined with the haphazard way the postponements were communicated, suggested either that part of the bureaucracy was in disarray or that China’s economy was in worse shape than most people had realised. It also raised questions about the reliability of the data.

“It’s a horrible blunder,” said Taisu Zhang, a Yale University law professor who specialises in comparative legal and economic history. “I don’t know if they are massaging the numbers. Even if they need to massage the figures, the better thing to do would be to massage them within the usual time frame.”

Beijing set a target in March that growth would be “about 5.5 per cent” this year. Yet Western economists have estimated that China’s economy grew only a little more than 3 per cent in the third quarter.

That still would have been better than growth of 0.4 per cent logged in the second quarter, when Shanghai was locked down for two months to stamp out a COVID-19 outbreak.

Xi has put a premium on social stability and national security, often with actions that have had a side effect of slowing economic growth and employment. Regulators have clamped down on the tech sector, contributing to widespread layoffs among young employees. Dozens of the country’s private property developers have defaulted on debts this year after Beijing discouraged real estate speculation. Tycoons have been fleeing the country. Municipal lockdowns to stop outbreaks of COVID-19 have taken a heavy toll.

Questions have long been raised about whether China’s economic growth statistics may be inflated somewhat or smoothed from one year to the next. But until recently, China had also released more granular data that made it possible to draw conclusions about the economy’s overall health.

One such measure is the rising value of new office complexes, rail lines and other investment projects. But starting last year, China is no longer releasing data on inflation in construction costs.

That has made it hard to calculate the true value of the new investments, said Diana Choyleva, chief economist at Enodo Economics, a London consulting firm. So while the total money invested is still available, it is no longer clear what that money is actually buying.

Underlying data had been available for China’s international trade, its main engine of growth. But growing inconsistencies started to become apparent over the summer.

China’s General Administration of Customs reported sharp increases through August in exports to the United States and Europe. But the number of containers leaving Chinese ports for these destinations was flat.

“It’s a horrible blunder. I don’t know if they are massaging the numbers. Even if they need to massage the figures, the better thing to do would be to massage them within the usual time frame.”

Average prices charged by factories in China to wholesalers have been little changed. Few economists think that China is earning more money from exports through inflation. The plateau in containers even as export statistics are rising is consistent with previous periods of economic weakness in China, as exporters exaggerate the value of their shipments to customs officials as part of complex strategies to move money out of China.

There are other signs that actual exports of goods are now in trouble. Taiwan has very similar trade patterns to mainland China, and on October 7, Taiwan reported a sharp, unexpected drop in its imports and exports during September.

Another problem is that even when China releases data, it sometimes provides less explanation now of how the data is calculated. Derek Scissors, a senior fellow specialising in China and India at the American Enterprise Institute in Washington, said that he used to be able to get answers from Chinese officials on how certain investment statistics were calculated. But in the past couple years, they are no longer willing to discuss their data.

Monday’s postponement of the release of economic data had little discernible effect on Chinese financial markets Tuesday. Share prices rose sharply in Hong Kong as a change in British tax policy preceded a global rally in stock markets. The Shanghai and Shenzhen stock markets, more insulated from international events and also heavily managed by Chinese authorities, were little changed.

But delays can have a corrosive effect on China’s image in financial markets.

“If delays start to become a regular occurrence,” said Julian Evans-Pritchard, the senior China economist at Capital Economics, “then that could reduce confidence in the official economic data and the professionalism of China’s bureaucracy.”

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