About China’s Booming* GDP *Good data mask dangerous imbalances that are growing worse.
https://www.wsj.com/articles/about-chinas-booming-gdp-11611000318?mod=opinion_lead_pos4
The economic data Beijing released Monday seems to suggest that China has met expectations that it would be the only major economy to grow in 2020. China being China, there’s much more—and less—to the story.
The top-line data make China a rare good news story in the pandemic year. Inflation-adjusted GDP growth hit 6.5% in the last three months of the year, making it 2.3% for 2020. This contrasts with the rest of the world, where social distancing and lockdowns have triggered some of the worst contractions on record and raise the specter of long and difficult recoveries.
Some of Beijing’s cheerleaders want you to believe this is mainly because the Chinese government acted so aggressively to suppress the pandemic. That story sits uneasily alongside Beijing’s slow-rolling of early information about Covid-19 when more information sharing might have helped other countries.
Beijing adopted particularly aggressive lockdowns once it did act, sealing off entire cities and even now locking down apartment buildings or neighborhoods at a moment’s notice to suppress outbreaks. To the extent anyone can trust Beijing’s data about virus spread, it appears to have Covid mostly under control.
But a closer look at the economy suggests the growth has come from somewhere other than Beijing’s putative suppression of the pandemic. China’s Communist Party reverted to its old economic-crisis playbook to goose debt and exports while tightening political dominance over the economy.
New credit has exploded, with total public and private debt expected to exceed 270% of GDP in 2020, up 30 points in one year. Most of that has gone to state-owned firms and exporters. Smaller, more productive private companies that serve the domestic market report credit shortages. This undermines long-term growth but suits President Xi Jinping’s goal of consolidating Party control.
One clue that something’s amiss is that retail-sales growth slowed as the fourth quarter progressed, slipping to 4.6% year-on-year in December and now significantly lagging overall GDP growth. Lockdowns explain bad retail sales in the West, but China is supposed to be open for business. Dipping sales suggest, as economist Michael Pettis argues, that much-needed rebalancing toward domestic consumption is stalling or reversing as the global pandemic crisis drags on. The economy was driven through 2020 mainly by fixed-asset investment and that old standby, real estate.
This means a major challenge is looming behind Monday’s good news. Unless China can unlock and expand its productive private economy, it will never be able to manage the burden of the debt Beijing has created to generate Monday’s bump in GDP. Yet China’s evolution toward a true market economy was reversing under Mr. Xi before the pandemic, and political control is increasing now.
China’s unbalanced recovery represents an enormous lost opportunity for the Chinese people. It will also eventually present a serious challenge to Mr. Xi or one of his successors.
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