There is a social contract of sorts among all governments of the world to share economic data on prevailing conditions. Behind that practice is a collegial contest to see which nation has the healthiest system, which in turn serves the capital markets by helping to direct resources where they are needed.
Sometimes the data are inaccurate. Sometimes there are lies. But in general, there is at least an attempt to play along with the expectation. This allows agencies and investors to make better assessments and prognostications, plus assist policymakers and central bankers in particular in making better judgments.
There is a general rule in operation. The more transparent governments are with the data they collect, and the more freedom of speech that is permitted to interpret the data in different ways, the more credible the data are. It is also likely that governments that share and discuss their numbers also have numbers about which they can feel pride.
Rarely do nations go entirely silent on the market, as in turning off the switches and making the data rooms go dark. It is an ominous sign.
This is precisely what has happened in China.
For the past several months and, in some cases, for the past several years, China has gone dark in reporting the following: land sales, foreign investment, unemployment numbers, business confidence, numbers of investors in financial markets, real estate valuation, retail sales, and even vital data on cremations so that health authorities have no idea what is going on. The bureaus have simply stopped reporting.
Given that China is the world’s second-largest economy, and given widespread doubt about the country’s economic health, this is gravely concerning.
Close watchers have long raised doubts about China’s gross domestic product (GDP) data. We are told that the economy grew by 5 percent in 2024, which would be extremely impressive. But such huge measures are subject to manipulation in every country—especially in one that has made the promise of extreme economic growth central to the power and permanent control of the Chinese Communist Party. Experts have suggested that growth rates have been exaggerated by two to three percentage points.
This past December, a highly regarded Chinese economist, Gao Shanwen, sat on an expert panel while visiting colleagues in Washington at the Peterson Institute for International Economics. Thinking that perhaps he should speak his mind, he said very plainly that no one knows for sure what the growth rates in China are. He speculated that they might be about 2 percent.
“My own speculation is that in the past two to three years, the real GDP number on average might be around 2 percent even though the official number is close to 5 percent,” he said.
No one in the room thought anything about it. The speaker seemed to have temporarily forgotten that he was not an independent actor and was in no position to offer his objective assessment.
But word got out immediately in Beijing. The economist was immediately disciplined and silenced. He no longer holds a job in his old securities firm. His comments have been scrubbed from any sites accessible within China. He has lost his license to speak about economic affairs. Meanwhile, the Securities Association of China has instructed all people who speak about China’s economic health to say only nice things.
We can gather from the above that the data that were once routinely reported are not saying nice things. It’s one thing to silence the economists, but to censor the underlying data only ends in raising alarm bells.
And those alarms have been rung, and now observers are considering the worst. There might be a hidden real estate crisis, and a major problem with unemployment added to it. Investment might be collapsing and government finances might be in major trouble.
For decades, China has developed a stable system for economic growth that has relied on five main pillars:
• Lower-cost manufacturing to compete and ultimately displace manufacturing in the West.
• U.S. consumers hungry to get ahead of their own falling wages and salaries with cheaper consumer products and intermediate goods.
• Central bank credits for business development built on large holdings of U.S.-denominated debt.
• A domestic currency trading far below the trade-weighted average of the U.S. dollar, the world reserve currency, thus favoring exports over imports.
• State-directed and funded infrastructure development that calibrates investment based on national goals.
It was never the free market that pundits imagined that it would become in the 1990s and beyond. But it was also helped by a loose regulatory environment that minimized the litigation overhang that vexes Western economies, and its agency impositions were tolerant of enterprise insofar as it never threatened political priorities.
Crucially, China was able to benefit from the presumption that the global system of trade would never raise foundational questions about low tariffs and cross-border investment.
That last presumption has dramatically changed. The first Trump administration began the process of reevaluation. This was in 2018, and the result was a documented decline in U.S. imports from China. This was reversed two years later with the onset of the COVID-19 pandemic that called upon China to provide vast goods to the United States. Mass numbers of Americans found themselves mandated to wear masks, for example, most of which were imports from China.
Five years later, the push to decouple the United States from dependence on China’s manufacturing sector is back on. The second Trump administration has wholesale reversed 80 years of U.S. precedent in trade policy with a turn toward tariffs. The hope is that these will help settle accounts, boost U.S. manufacturing, and provide a revenue stream to reduce reliance on high-income taxation.
Regardless of whether and to what extent this dramatic shift has this effect domestically in the United States, it has likely had a major impact on China’s economic prospects, simply because it challenges a long-running assumption that the United States would forever serve as China’s consumer marketplace.
We should pause to consider the great irony of this whole situation. For centuries, businessmen have fantasized about the sheer size of China as a consumer, and imagined ways to invent products and services to sell. “A pair of shoes for every Chinese foot"; “China’s market will make us rich”; “a market of 400 million customers”—these slogans were bandied about for a century.
But when it came right down to it (and herein we find the essence of the unpredictability of economic affairs), it was not China as consumer but China as manufacturer that dominated the landscape for decades following its opening.
Only now do we see full consciousness dawn in the United States concerning the implications for U.S. manufacturing.
What is to be done? A better path than protectionism is mass deregulation, a dollar more powerful at home and more competitive abroad, and lower costs of doing business through a renewal of the U.S. entrepreneurial spirit. This will need to come one way or another. Trade barriers alone cannot hold back the tide.
Meanwhile, China suddenly faces its own grave economic challenges, which could grow so substantially as to threaten even the political stability of the country. Right now, outside observers have been largely blinded as to how serious the situation has become. We just don’t have the data.
