If expansion requires domestic debt, it will not last. Foreign demand is unreliable and less important to China than it was a decade ago. The only solution is internal reform. Beijing must innovate and it must make more efficient use of its battered land, a labor force that will soon stop expanding and its capital.
Stronger ownership rights — to both intellectual property and land — would accomplish the first two objectives and sharper competition the second two.
If these improvements are not made, the economy will stagnate and political imperatives will then overwhelm any methods of improvement, pushing Chinese data further away from reality.
Beijing is ostensibly becoming an economic rival to Washington and could even be a contender to become the new leader of the global economy. The US cannot be seen as taking that challenge seriously if it considers official Chinese economic data accurate rather than driven by politics or otherwise misleading (as with GDP).
It is time for the US to generate its own estimates of important Chinese economic statistics to guide policy in bilateral ties and clarify the economic balance. This would both raise the quality of US policy and offer its friends and allies a more accurate picture of the global economy.
Specifically, the US departments of the treasury and commerce, along with the CIA should compile an independent economic report measuring China’s wealth, unemployment and other vital information and publish it on an annual basis.
A cyclical economic recovery means official data concerning Chinese economic aggregates for last year are not too far off. However, structural weakening will continue and the cyclical recovery will ebb by the end of this year if it is not reformed. If that happens, official statistics will become less useful again.
For its part, the US can and should do better than parroting the latest claim that GDP growth exceeded China’s target.
Derek Scissors is senior research fellow in Asia economic policy in the Asian Studies Center at The Heritage Foundation.