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Federal Reserve Says China’s Economic Numbers Are Just As Garbage As Their COVID Data

COVID in China

The Chinese government has been aggressively promoting a China success story in recent months, claiming economic growth since last spring’s Wuhan virus outbreak as evidence that China is the only nation that has conquered the pandemic. Beijing concludes that its authoritarian regime is superior to Western democracies. The leftist media in the United States have taken the Chinese government’s propaganda at face value and aided its promotion relentlessly as a way to condemn President Trump.

In an article titled, “China Got Better. We Got Sicker. Thanks, Trump,” New York Times columnist Tom Friedman praises China for being able to “deploy all the tools of its authoritarian surveillance system — tools designed to track and trace political dissidents to control the population — to track and trace those infected with the coronavirus and control its spread.” He believes China’s economy recovered because its government first controlled people to control the virus, while the Trump administration is still struggling with stopping a viral infection. Friedman concludes, “Covid-19 was supposed to be China’s Chernobyl. It’s ended up looking more like the West’s Waterloo.”

Did China really conquer the coronavirus and once again become an economic growth engine of the world? A new study released by the Federal Reserve Bank of New York casts fresh doubt on such economic claims out of Beijing.

Don’t Trust China’s Numbers

One popular belief among economists and investment professionals is that the Chinese government’s statistics are unreliable, given widely publicized reports of “falsification of data at the local level, non-transparency and secrecy around methodological processes, including but not limited to price deflators, limited independence of the statistical authorities, and censorship of the domestic financial press, especially during periods of economic stress.”

Researchers at the Federal Reserve Bank of New York presented new evidence that shows China’s official economic data, such as its gross domestic product, is not only inaccurate but also heavily manipulated. They observed that “China’s official data on GDP growth appear implausibly smooth in recent years,” which “calls into question the usefulness of China’s official growth data in forecasting and in making policy and business decisions.”

To obtain a more realistic picture of China’s economic conditions, these researchers constructed a set of alternative data, such as satellite nighttime lights, bank loan numbers, and rail freight volume, as the basis for their analysis. They found that China’s actual economic growth “has been more volatile over the past five years than portrayed in the official GDP statistics.”

For example, these researchers noticed that China’s actual economic growth “slowed by substantially more than reported over the course of 2014 and 2015 and then staged a rebound in 2016, to peak in early 2017, a pattern that was scarcely evident in the official data.” These Fed researchers’ conclusion is that the Chinese government has been cooking its books for years.

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?

Authoritarianism Isn’t the Answer

There are signs that China’s economy has indeed recovered somewhat since last spring, but the recovery seems to be very uneven. State-owned enterprises recovered faster with an infusion from state-owned banks, while many private businesses closed their doors forever. Those in the upper-income percentile have fared much better than those at the bottom, and current economic growth has been driven more by production than consumption.

The uneven recovery is illustrated by a recent protest in Beijing, which is very rare in this heavily guarded and monitored city. The protest consisted of more than 200 parents who demanded money back from a private tutoring company after it collapsed under financial stress as the result of the pandemic and government lockdown.

China’s post-COVID-19 recovery is also largely driven by the same tools the Chinese government has relied on far too often in the past: using easy credit to fuel investment-intensive growth by state-owned enterprises. This approach did quickly generate growth in certain areas, but its effectiveness has waned over the years.

The Fed researchers are also concerned that the Chinese government’s approach would “lead to a build-up in financial stability risk,” given that China’s total debt-to-GDP ratio had already topped 300 percent prior to the pandemic. Further government stimulus post-pandemic will only worsen China’s debt crisis. To put this into perspective, Greece resorted to asking the European Union for a financial bailout when the country’s debt-to-GDP ratio reached 179 percent in 2010.

In truth, China didn’t conquer the coronavirus pandemic. Its official report of economic recovery is highly questionable and does little to prove the superiority of its authoritarian model.

China Isn’t the Gold Standard

Those who peddle a China success and America failure story are wrong. COVID-19 is not the West’s Waterloo. Just look at the recent U.S. economic data. The Wall Street Journal reported that the U.S. economy “grew at a record pace in the third quarter — increasing 7.4 percent over the prior quarter and at a 33.1 percent annual rate.”

The U.S. job market is improving too. “The number of workers filing initial claims for unemployment insurance fell by 40,000 to 751,000 last week to the lowest level since the pandemic began,” the Journal noted. Although we have work to do before we fully recover, with American ingenuity, creativity, and productivity, we will not only get back to where we started but become even better.

If this pandemic and the following economic recovery in the United States and China have proved anything, it’s that the free market is a much better model than a planned economy. Freedom is far better than authoritarianism for the prosperity and wellbeing of all people.