China Economy: Beijing Refuses to Admit Its Economy Has Broken DownMenu iconSearch iconBusiness Insider logoBusiness Insider logoAccount iconAccount iconClose iconChevron iconAccount iconShare iconFacebook IconEmail iconTwitter iconLinkedIn iconLink iconSave Article IconAngle down iconClose icon

China's economy can be tricky to read.

While the stock markets have tanked, with losses widening earlier this week to some $7 trillion from their peaks in 2021, economic statistics are not all uniformly gloomy.

Last year, China — the world's second-largest economy — chalked up 5.2% in GDP growth. Meanwhile, economic data has been mixed coming into 2024, confounding observers.

Researchers from New York-based Rhodium Group, an independent research firm, called out the discrepancy in a report on Monday.

"Through the second half of 2023, the gap between China's impressive official data and visibly underwhelming consumer demand, unresolved local government debt problems and an unprecedented drop in foreign direct investment was stark," wrote Daniel H. Rosen and Rachel Lietzow, a partner and research analyst at the research firm, respectively. Rosen, who leads Rhodium Group's work on China, was a senior adviser for international economic policy at the White House National Economic Council and National Security Council from 2000 to 2001.

Despite this, Beijing didn't quite fix its fundamental problems and was instead pulling other moves like wooing foreign investment and threatening those critical of its flailing economy.

In other words, "policymakers did next to nothing to tackle the real structural problems," Rosen and Lietzow wrote in their report.

Part of that is because Beijing hasn't admitted that its economy is in trouble.

Chinese leader Xi Jinping said on New Year's Eve that the country's economy is "more resilient and dynamic than before," even as he acknowledged that some businesses were having a "tough time."

Rhodium Group's researchers aren't quite sure about the rosy narrative of China's economy, calling it a "politicized picture of economic activity."

After all, China's economy struggled to regain traction after a brief spurt post-pandemic, disappointing investors.

"In the first quarter of 2023, recovery was expected, but doubts arose by the second quarter. By the second half of the year, confidence had broken down entirely," wrote the Rhodium Group researchers.

Even though Beijing claimed China outperformed its GDP growth target of 5%, authorities were still in "a running battle to roll out extraordinary support measures," Rhodium wrote.

"As 2024 gets underway, new emergency steps to prop up stock markets are being added to the mix, yet another sign that all is not well," they added.

At the end of the day, official Chinese statistics haven't "conceded this reality" of a loss in market confidence and economic troubles, they wrote. And while a recovery this year is possible, it's only because the property market has crashed stupendously.

"That recovery will be real, but cyclical and transitory," they wrote. "Long-term stability will still require urgent market reforms, and the present danger will be that recovery makes the pain associated with real reform harder to justify."

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