Chinese government officials have an uncanny knack for hitting their official targets. The National Bureau of Statistics of China claimed this week that the world’s second-largest economy grew by 4.5 percent during the third quarter, conveniently keeping the country on track to hit annualized targets.
A good reason to be skeptical is that the government has stopped publishing much of the granular data needed to independently assess the true state of the economy. Such information is now considered a state secret. China’s opacity is a serious weakness because functioning markets depend on trustworthy information.
Juked stats are more than an inconvenience for economists. Investors need numbers they can literally bank on. Lenders need them to determine which borrowers deserve credit. Entrepreneurs need them to decide whether to expand or retrench. Prices, profits and losses transmit information throughout the economy, directing scarce capital toward productive uses and away from failing ones.
Postponing economic reckonings is a core weakness of state-directed markets. Bad investments continue longer than they should. Capital keeps flowing to politically favored industries. Investors who can put their money elsewhere do so.
This week’s robust Chinese growth report flies in the face of what is clearly a bleak economy. Can the gross domestic product really be so resilient when the property market is depressed, consumers aren’t spending and businesses are struggling? Existing home prices are down around 40 percent since 2021, and since many Chinese strongly prefer to invest their money in property, consumer spending is weakened. Retail sales reportedly rose just 1.1 percent in September, down from 3 percent a year earlier.
Weaker retail sales have led to job losses. Officially, China’s urban unemployment rate is 5.2 percent, unchanged from a year earlier. But most outside analysts believe the real unemployment rate is vastly higher, especially among young people and fresh university graduates. In 2024, the government changed the way it counts youth unemployment, camouflaging the real picture.
Total debt in China — government, corporate and household — stands at about 300 percent of GDP, compared with roughly 260 percent in the United States. China’s debt woes receive less attention because almost all of it is domestic debt owed to Chinese creditors. Much of that money was used to finance office towers and apartment blocks that now stand empty. Under pressure from the government, however, Chinese banks keep rolling over bad loans and extending credit to indebted private companies and local governments.
China’s central planners can direct enormous capital toward building high-speed rail, solar panels, electric vehicles, semiconductors and the like, but those allocations are inherently inefficient. International Monetary Fund researchers estimate that China’s industrial-policy support through subsidies, tax benefits, subsidized credit and cheap land amounts to about 4 percent of GDP a year. The resulting misallocation reduces China’s overall productivity by an estimated 1.2 percent.
China has nevertheless found a way to keep the headline growth number aloft: Produce more than its consumers can absorb and sell the surplus abroad. Exports surged in September, stoking tensions with trading partners. But an economy cannot solve weak domestic demand indefinitely by exporting excess capacity to the rest of the world, especially when it’s so heavily subsidized.
China also faces a long-term demographic time bomb. Its birth rate remains one of the world’s lowest, despite jettisoning the disastrous one-child policy. The country recorded 7.92 million births in 2025, half the number a decade earlier and the lowest level of births since 1939. An estimated population decline of 60 million people awaits in the next decade. That’s about the population of France. Far fewer workers will be available to support more old people.
One U.S.-based researcher recently estimated that China may already have 130 million fewer people than official population figures, based on discrepancies in birth, health and education records. The researcher, Yi Fuxian, a demographer with the University of Wisconsin at Madison, said local governments are incentivized to inflate birth rates, and schools to pad their enrollment figures, so that apparatchiks receive political credit and more subsidies from Beijing.
China’s progress came by moving away from Maoist central planning and giving more leeway to private enterprise. The Organization for Economic Cooperation and Development estimated this spring that China’s private sector accounts for 60 percent of GDP, two-thirds of investment, 70 percent of technological innovation and 80 percent of employment.
Capitalism is the solution. Bankruptcies and write-downs are painful, but they release workers and capital from yesterday’s mistakes so they can reorient toward tomorrow’s opportunities. Markets work because they are messy.
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