China released its third-quarter GDP numbers last night, like a baseball stat line: 9.8/5.2/4.9/4.9. That’s (1) a 9.8 percent gain for real GDP in the first three quarters of this year over the first three quarters of 2020, (2) an average 5.2 percent annual gain over the first three quarters of 2019 (to adjust for COVID-19), (3) a 4.9 percent gain over the third quarter of last year, and (4) also an average 4.9 percent annual gain over the third quarter of 2019.

Despite all this, the upshot is
clear: The National Bureau of Statistics (NBS) is willing to say the F word. As
in Four. As in GDP, after creeping down toward six percent growth for years,
skips right past five percent as the scary lower bound. The Communist Party can
still announce whatever it wants — perhaps a powerful surge is declared in
January. But it’s becoming reasonable to think Party leadership is losing interest
in claiming fast GDP.

Backing this up is willingness to declare weak consumption. The two-year average rise in retail sales was stated to be 3.9 percent. It understates the problem. Nominal GDP gained 18 percent over the announced result for the first three quarters of 2019. Nominal retail sales gained 7.2 percent. Touted by some as the future growth engine for the world, Chinese consumers remain a drag on their own economy.

Fixed investment is a mess. The
NBS puts two-year average growth at 3.8 percent, while a direct comparison to
announced fixed investment at this time in 2019 shows a 14 percent drop. The NBS says revisions are
ongoing. Their numbers imply investment through three quarters of 2019 was
exaggerated by nine trillion yuan. If
the current speed of fixed investment is correct, then two years ago it was
about $1.3 trillion lower than claimed.

It’s worth reinforcing that the Party doesn’t have to (very quietly) admit to any of this. It could have continued publishing exaggerated investment, parroted by legions of “experts” who use official data to confirm official data. To create such a large discrepancy, investment must have been exaggerated for years. But seemingly not now.

In the best case, nominal GDP mildly outpaced sales and investment since 2019. It’s been able to do so in part because the trade surplus has soared 35 percent over that period, setting records. Chinese GDP has become more dependent on others, which fits awkwardly with statements from Xi Jinping about more self-reliance. Right now, more self-reliance would mean still slower GDP growth. That may be a tradeoff Xi, at least, likes.

Unlike its reaction to the global financial crisis, China has not (yet) opened monetary or fiscal taps. Thus far in 2021, fiscal revenue is reported to have outrun expenditure, narrowing the budget deficit. Lending volume is enormous but gradually slowing. Broad money M2 growth of 8.3 percent and narrow money M1 growth of 3.7 percent to date show no hidden liquidity surge and roughly fit GDP claims.

Responsible monetary policy may
also be helping protect consumers from a surge in producer prices. The latter
accelerated to a 6.7 percent rise through September while consumer inflation
languished below one percent. The nominal GDP deflator shows inflation between
those two results, which is on the high side in a slowing economy but only
mildly so.

The most compelling reason to expect more modest GDP out of Beijing is it’s been “decoupled” (if I may) from what really matters. First-quarter GDP growth of better than 18 percent was said to create three million urban jobs. Third-quarter GDP growth of 4.9 percent was said to create 3.5 million. This may or may not be reasonable but it is certainly the case that if you have enough jobs, you don’t need to insist on fast GDP.

Since China’s labor force will continue shrinking, perhaps for decades, it will have enough jobs indefinitely. The conventional reaction to last night’s data is China’s economy is surprisingly sluggish. Actually, China’s economy has been this sluggish, and worse, it’s just that the Party previously refused to admit it. The big story is it’s just possible they may no longer care.

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