In China, there are two “different sets of books” depicting the state of the country’s economy. One set conforms to the official line promulgated by the ruling Communist Party, but it’s made up of fake data. This version is public. The other set contains the real data, but this set can only be accessed by Party officials or bought on the black market.
That’s according to Christopher Balding, who taught economics at Peking University Business School in Shenzhen for nine years, until 2018. That year, Balding lost his post at the university after voicing concerns about Beijing’s censorship practices. He then left China, citing concerns for his safety.
While most people are familiar with the Chinese Communist Party’s (CCP) top-down censorship constricting the populace’s freedom of expression and access to information, they may not realize the extent of the censorship within the regime’s sprawling bureaucracy itself, said Balding, who now resides in the United States.
He stated that “there are absolutely different sets of books” concerning economic data in China.
Regional Chinese authorities have even admitted as much in recent years. In January 2017, authorities in northeastern China’s Liaoning Province admitted to inflating the province’s economic data from 2011 to 2014. A year later, a city in northern China’s Inner Mongolia revised its 2017 economic data after conceding that it had incorporated “fake additions.”
Balding recalled an anecdote from his time in the country. A Chinese official told him that another official working at a local branch of the national statistics bureau was arrested for selling real economic data.
Balding asked the official whether the person was charged with corruption or national security offenses. “Oh, national security,” the official said. “We can’t have that information out in public.”
“Just to hear the confirmation that there was real data and fake data, I think, was quite eye-opening,” he said.
This two-tiered system has spawned a “thriving black market for data” in the country, according to Balding.
However, the data-rigging game is getting harder to pull off, he said. Specifically, it’s getting more difficult for the regime in Beijing to align manipulated data with other data that are harder to contrive, including observable information, such as air quality and light intensity.
Reconciling a region’s industrial activity figures with air quality data could be telling, he said. Economic data provided by a province with a sizable steel manufacturing base could be cross-checked by analyzing the region’s air quality levels. If the province’s air quality is good, it’s likely that steel manufacturers have burned less coal. Thus, it would be hard to believe that the region had high levels of economic activity.
Evergrande
While much has been postulated about whether the Chinese regime can or will rescue embattled real estate developer Evergrande, Balding believes the answer to be quite simple.The CCP “absolutely can just make this problem go away very easily,” he said, noting Evergrande’s $300 billion in liabilities are a mere fraction of the country’s gross domestic product (GDP).
But the key question in this saga is whether the developer’s woes have metastasized to other sectors of the Chinese economy, such as retail and banking.
“The risk is not Evergrande itself,” Balding said. “The real issue is [whether Beijing can] manage this so that people don’t lose faith in other parts of the Chinese economy, whether it’s real estate, whether it’s an aluminum supplier, whether it’s [a] cement company, whether it’s [a] bank.”
On Oct. 24, Evergrande announced that work had resumed at more than 10 property projects in six different Chinese cities, though the company hasn’t disclosed the number of projects it has suspended among about 1,300 real estate projects across the country.
Balding pointed to potential troubles at one Chinese bank, Ping An Bank, headquartered in southern China’s Shenzhen city.
According to Reuters, Ping An Bank reported that its outstanding special mention loans had increased by 37.3 percent in the third quarter, compared to the end of 2020, in its earnings report released on Oct. 20. The overdue rise in loans was attributed to a liquidity crunch at Shenzhen Baoneng, a property and financial services conglomerate.
“People have faith in a bank because they can go there and get their money,“ Balding said. ”If people lose faith in the bank, even if the bank still has a good balance sheet, that bank is going to collapse because everybody wants to go get their money.”
However, any troubles stemming from the Evergrande crisis will mostly be limited to within China’s borders, according to the economist.
“There’s not a lot of financial flows from outside of China into Chinese real estate. There’s not a lot of financial flows into Chinese aluminum companies,” Balding said. “You would, however, see very narrow and targeted direct sectors or companies feel a lot of pain.”
These companies would include foreign iron ore makers, he said, as Chinese steelmakers would reduce their purchases of the raw materials.
Chinese Economy
Evergrande is hardly the only case in China of debt-fueled growth coming back to bite a company, according to Balding, who said it’s a country-wide issue.China is a “wildly indebted country,” he said. “The Chinese household is more indebted than the U.S. household.”
“If you were to compare Chinese household debt to Russia or Mexico, which it compares pretty closely to per capita income, the Chinese household is wildly more indebted than those other households,” he said, noting most of this debt is tied to the property market.
“You simply can’t carry forward an economy with the levels of debt that we’re seeing,” Balding said.
Such high levels of debt will impose an “enormous restraint” on future spending capacity, dampening spending on luxury goods or international education, among other things.
While one could make an argument that this debt addiction, the Evergrande crisis, and other trends are conspiring to hurl the country into dangerous economic territory, Balding said that any assessment about the possibility of a financial crisis should take into account one key factor: China’s political system.
The question of when China will face a financial crisis, in Balding’s view, is a “political question more than an economic or financial question.”
Authoritarian regimes, such as the Chinese Communist Party, can ill afford to preside over such economic turmoil.
“If there ever is a financial crisis in authoritarian states ... it does not end well for leadership,” Balding said.
The problem thus becomes an “existential question” for the communist regime, he said.
All this means that Chinese leader Xi Jinping will likely be willing to do whatever it takes to resolve a crisis.
“There is no check too big that he will not write,” Balding said. “There is no bailout too large that he would be unwilling to bail out.”
Because ultimately, Xi “does not want to preside over the collapse of China.”
