The Guardian view on the Chinese Economy: Current Concerns and Hidden Challenges

Recent data indicates a concerning state of the Chinese economy. The nation was anticipated to recover after abandoning its strict “zero Covid” policies. However, despite an initial resurgence, the situation has taken a downturn. It has even entered a period of deflation this month. Vital indicators such as industrial production, investment, and retail sales have fallen significantly below projected levels.

The most troubling aspect, though, pertains to an unseen statistic. The youth unemployment rate, which reached a record high of 21.3% in June, was excluded from the regular economic data release. This not only suggests a bleaker scenario for July but also implies that improvement is not likely in the near future. The Chinese government has chosen to withhold various statistics in recent years. While there are several reasons for this, including potential release to data firms, it may have contributed to concealing negative news and complicating cross-referencing of information. Additionally, Chinese economists face pressure to avoid discussing negative indicators.

Historically, the economy has always been subordinate to politics under the Communist Party’s rule. However, this alignment has become more pronounced in recent decades. Even tech giants have been reined in, and bankers have been directed to study Xi Jinping Thought. The question arises whether this heightened political control is affecting not only economic performance but also our comprehension of it.

The primary concern lies within the domestic audience, especially since the authorities rely on them to spend due to reluctance towards implementing a stimulus. Furthermore, a growing antagonism towards the external world is evident. For instance, Beijing expanded the definition of espionage in existing national security legislation in June, leading to limitations on overseas access by certain Chinese data providers.

Nonetheless, the leadership is not without its own blind spots. Li Keqiang, who served as premier until this spring, once conveyed to an American diplomat that GDP figures were unreliable and manipulated. Analysts often seek information from the lowest levels of bureaucracy, understanding that figures are manipulated by officials at each stage to gain approval from higher-ups.

Observers note that the National Bureau of Statistics (NBS) has worked to address these concerns, potentially rendering some data more accurate than before. However, in an environment where only “positive energy” is encouraged, people are hesitant to deliver bad news. Not only has investigative reporting been curbed, but even the “internal reference” service for top officials, involving insights from journalists and researchers, has been hindered by self-censorship or editing along the way. Some experts speculate that those within the national security apparatus might similarly be cautious about disseminating information.

Political scientist Prof Dali Yang suggests that the system is designed to shield the public and decision-makers from critical information. His book “Wuhan” highlights how China established an early disease warning system after Sars, only for bureaucratic fragmentation and deliberate suppression to prevent timely reporting of the Covid-19 outbreak to Beijing. While central planners monitor the economy more closely, the question lingers whether their information is accurate and timely enough.

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