China Misleads on Economy – USA Gov Policy

It is relatively easy to make up numbers to corroborate a tall story one wants to portray as real. Everyone has heard the fish tale where a dad caught a 30-pound brown trout on opening day of fishing season… that is the true story as told to others. Today China is attempting to convince the world that its economic expansion looks like that 30-pound trout. Could it be true? Seumas Petrie, after all, did catch the world’s heaviest brown trout in New Zealand in 2020, and it did weigh in officially at 44 pounds. The trick to creating a believable economic narrative is to make it close enough to reality to be believed possible. China recently tried and failed in its latest claims that the country’s economy grew 5.2% last year. It was a whopper of imagination on the part of the government in Beijing.

The lifting of pandemic restrictions did help bolster China’s Covid-era economy, increased domestic flights, and helped the revenue growth of consumer-focused companies expand, according to data outside of China’s National Bureau of Statistic, says Tom Hancock of Bloomberg. China also experienced a sharp drop in real estate construction, failing exports, and financially-strained local governments suffered. Rhodium Group, a leading independent economic data analytics firm, says the real economic growth number for China in 2023 is closer to 1.5%.

It will take time and good policy to fully recover. “China may see a cyclical recovery to perhaps 3.0-3.5% growth in 2024 as property bottoms out, although structural slowdown will naturally remain the dominant story for years to come,” according to Daniel Rosen, Logan Wright, Charlie Vest, and Ragan Quinn of Rhodium. Who’s correct? An analysis of the property sector in China indicates it is far from bottoming out in 2024. The OECD, World Bank and IMF predicted in 2022 China would meet its target. Rodium was more accurate when it argued that Chinese growth for 2023 would remain below 3%.

Analysts studying the Chinese economy point out that if China’s 2023 growth numbers were correct, consumers would need to have spent as “heroic levels.” That didn’t occur by mid-2023. Government spending remained mired in local debt burdens, there was anemic income growth with high unemployment, and declining household debt-to-income ratios. Construction slowed to levels that made high household spending impossible. The shrinking property sector and defaults among private developers, according to Rodium analysts, left local government without the needed revenue stream to meet obligations. China’s trade surplus shrank.

“By October, officials were alarmed enough to authorize one trillion yuan in special treasury bonds to boost local government investment, though most of that would not land until 2024,” says a Rodium analyst. During the turmoil China’s official statistics barely moved away from its predicted target numbers. Instead, officials “tweaked” data to reinforce a whopper of a fish tale until the economic numbers looked like what China wanted to present to the world. Now the world is asked by Beijing to believe predictions for 2024 when there is significant evidence of a manipulated 2023 baseline. The contraction of the property sector alone highlights some of the major problems Beijing is facing going into 2024. In the past it accounted for up to 25% of all economic activity in China. If reporting from China’s National Bureau of Statistics can be relied upon, then year-over-year from 2022 the country experienced a drop equivalent to 1.6% of China’s GDP. It may have been worse. To reverse that negative number other sectors of the domestic economy would have to have experienced tall, fish tale-sized growth. That didn’t occur as even officially, China’s private sector growth was negative.

“China saw net disinvestment in the foreign direct investment channel in the third quarter of 2023 for the first time on record (since the 1990s), reflecting firms moving more capital out of China than bringing new money in,” according to a Rodium report. For the first time in four years, net exports declined while net imports increased, further challenging the accuracy of China’s official numbers.

The official narrative remains, despite evidence to the contrary. What we can determine about China’s fish tale level of growth is that the country experienced a structural slowdown in 2023 that led to weaker than expected growth and it will take years to fully recover. In 2024 China faces trade policy activism in the West with potential countervailing duties intended to neutralize Chinese EV exports as well as European investigations into its alleged dumping of biofuels onto the EU market. Western analysts say these factors and a myriad of others support predictions for Chinese economic growth in the range of 3.0% to 3.5%. The bright spot may be that if Xi Jinping and the CCP continue to face a slowing economy, it may force the leadership to abandon extreme ideological control over the marketplace and consider embracing economic reform and a reopening to the West.

Daria Novak served in the U.S. State Dept.

Illustration: Pixabay

Quick Analysis

Russia Expanding Aggression

President Putin is using more than one pathway to enter Europe and undermine the West. While most of the world watches the conflict he initiated in Ukraine, the Russian government is actively pursuing a second front in a little noticed campaign in Cyprus. Although the corrupt Cypriot government ended its issuance of “golden passports” in 2020, Russian intelligence is functioning quietly there to transform this EU country into a Russian beachhead of illicit economic activity aimed at penetrating the capitalist West, according to Paul Goble of the Jamestown Foundation. Cyprus is not a member of the North Atlantic Treaty Organization (NATO) nor does it receive as much attention as those countries who are member states. That adds to its allure as a prime location for Russia to attempt to gain a European foothold. Last week a NATO report, cited in the European Daily Monitor, noted that Russian intelligence agents have been plotting to destroy European infrastructure across the continent to disrupt states supporting Ukraine. It further suggests that Putin’s immediate goal is to lay the framework for a future move against the security organization’s members. Hungary, in particular, is another country garnering Moscow’s attention as it opposes the Western response to Russian aggression. Russia is focusing its intelligence efforts on other European, non-NATO member countries in addition to Cyprus, including Austria, Malta, and Ireland. The NATO report suggests that Moscow has had success in disseminating the Russian political narrative in these states to advance its campaign against the West. The island of Cyprus is proving to be a good target for Moscow as it is an ethnically divided island that is part of the EU since 2004. Northern Cyprus, officially called the Turkish Republic of Northern Cyprus (TRNC), is a de facto state that is only recognized by Turkey. The division precludes it from joining NATO. As Goble suggests, “it offers Russia troubled waters in which to fish.” Over the last 20 years, he points out, Cyprus’ challenges have opened it to a massive influx of Russian citizens, who now comprise approximately 10 percent of the island state’s population. Over 2,900 residents are Russians who entered until the “golden passport” program that allowed wealthy or well-connected Russians to move to Cyprus. It also provided them with documentation to travel freely throughout Europe! Although less visible on the world’s radar than the war in Ukraine, Moscow is also being helped by Cyprus’ banks opposition to seizing Russian assets and its support in evading Western sanctions. Russia has placed tens of billions of US Dollars there for money laundering. It has been more than two years since a single Russian “diplomat” has been deported and, in fact, the Embassy has grown to over 300 staffers on this tiny island state of only 1.2 million people. The Russian embassy in Nicosia has advanced communications antennae on its roof and opened a consulate on the northern end of the island. Moscow’s Ambassador, Mura Zyazikov, is a lieutenant general in the FSB with no diplomatic experience. The FSB, SVR (Russia’s Foreign Intelligence Service), and GRU are actively using the island as a base of operations against NATO Member states, Israel, and other Western allies. Moscow backs pro-Russian political parties who in turn influence Cypriot decisions on education, language, and other issues. “Dmitry Khmelnitsky of the Dossier Center says that its findings should be of concern not only to Cyprus but to the West as a whole. Those who ignore what Moscow is doing because Cyprus does not follow the EU sanctions regime are missing something critical,” says Goble. “Cyprus does not seek to get rid of Russian agents and does not interfere with their work,” Khmelnitsky concludes, “despite the fact that what the Kremlin is doing is so clearly visible.” This has an impact not only on the small island but on the EU, NATO, and the West in general. Earlier this year the Moscow Times reported that when the FBI became more interested in Russian business and oligarchs in Cyprus, at least 10 of the major Russian businesses operating there left. Despite the government of Cyprus’ vow to implement plans for new sanctions against Russia, it continues to ignore Putin’s atrocities in Ukraine and to shield the wealth of the 50,000 wealthy Russian citizens and oligarchs residing there. Daria Novak served in the U.S. State Dept. Illustration: Pixabay