China reported low economic growth, but in reality the situation is much darker – figures are embellished for many reasons, says an economist

The world’s second largest national economy does not seem to be doing well.

According to the Chinese Bureau of Statistics, the country’s gross domestic product (GDP) grew by 0.4 percent in April-June compared to a year ago. Even in the light of the official figures, growth has slowed significantly, and the main reason for that is the extensive closures due to coronavirus cases.

In reality, however, China’s economic situation is even bleaker than this. According to an estimate made by the Bank of Finland, China’s economy did not grow at all in April-June compared to the same time last year, but rather shrank by about two percent.

– China’s official figures should not be given much importance. It’s certainly not worth looking at any decimals in official figures, says a senior economist Riikka Nuutilainen From the Bank of Finland’s Emerging Economies Research Institute.

Last spring, the unreliability of China’s official figures sparked a wide debate. In April, China reported annual economic growth of 4.8 percent, which was more than analysts expected. The reading was also at odds with many other economic indicators. Chief Economist of Nordea Finland Wind Birch comment to STT at that time (you will switch to another service)that China seems to have started to manipulate the numbers for propaganda purposes as per its old ways.

According to Nuutilainen, China’s numbers are embellished for many reasons. There is a lot of political pressure on GDP figures. The country annually publishes its growth target, which is decided at the highest levels of the administration.

– Reaching the growth target is a kind of success measure for the political leadership, which is kept on display a lot, says Nuutilainen.

– If it seems that the desired growth is not being reached, it is ultimately done by embellishing the statistics.

According to Nuutilainen, GDP figures are also of great importance at the grassroots level. Achieving growth targets can affect the distribution of resources and it creates competition between different regions, companies and sectors. Several times the manipulation of numbers has been revealed precisely at the regional level, says Nuutilainen.

China’s economic growth target for this year is more than five percent.

However, this week it was reported after the Communist Party meeting that China will not achieve this goal. China also reports in the official GDP figures that in April-June the country’s economy shrank by a good two percent compared to the beginning of this year.

Nuutilainen considers it good news that the deviation from the growth target is also recognized by the party.

– It means that there is not so much need to do redundant infrastructure projects, the purpose of which is to increase growth figures, but which are otherwise not profitable.

The embellishment of GDP figures may also decrease when tough growth targets are abandoned, Nuutilainen estimates.

In any case, there are dark clouds over the Chinese economy. The challenge is especially low consumer confidence in the economy, as well as problems in the real estate sector and a decrease in construction.

When China’s economic growth slows down, its effects are widely felt.

This week, the International Monetary Fund (IMF) published its global economic forecast, in which China’s growth forecast was calculated from the spring forecast. The IMF predicts China’s annual growth this year to be 3.3 percent.

The slowdown in China’s economic growth also darkens the outlook for the global economy. According to the IMF, the world may be “soon on the brink of a global recession”.

According to Nuutilainen of the Bank of Finland, the weakening of China’s economic growth also directly affects many Finnish companies, because the Chinese market is so large and significant.

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