China reported real GDP rose 3.0 percent in the first three quarters of last year. It then comprehensively and extremely rapidly changed the most important policy for the economy, saw COVID kill thousands (or tens or hundreds of thousands) of people . . . and reported real GDP rose 2.9 percent in the fourth quarter. Quarter-on-quarter growth was unchanged from third to fourth.

COVID is (hopefully) ending as it began three years ago, with the National Bureau of Statistics (NBS) falsifying data to justify policy. The NBS isn’t subtle in numbers or words—its primary output is propaganda. As we can all see, the party is Correct:

faced with challenges of high winds and choppy waters in the global environment as well as arduous tasks to advance reform, promote development and maintain stability at home, under the strong leadership of the Central Committee of the Communist Party of China with Comrade Xi Jinping as the core, all regions and departments strictly implemented the decisions and arrangements made by the CPC Central Committee and the State Council, adhered to the general working guideline of making progress while maintaining stability, coordinated the work of epidemic prevention and control and economic and social development in an effective way, and responded to the internal and external challenges effectively. 

Using revised 2021 GDP, nominal growth in 2022 was 5.3 percent. The implicit deflator of 2.3 percent is much closer to full-year consumer inflation than higher, full-year producer inflation. In 2021, it was slightly closer to producer. If the deflator was located similarly to last year, real GDP would have grown 2.2 percent, a simple route to a more reasonable figure. 

The fourth quarter likely saw outright contraction. The official manufacturing and non-manufacturing purchasing managers indexes (PMI) failed, again, to fit official industrial and services production. The PMI show non-manufacturing sectors unambiguously contracting in Q4, and manufacturing contracting more, collapsing in December as to be expected. These clash sharply with stable quarter-on-quarter growth.

One NBS response might be: who cares? Revised 2021 8.4 percent GDP growth supposedly yielded 12.69 million urban jobs. Last year’s 3.0 percent yielded 12.06 million. Maybe China’s GDP is accurate and the rest of us just don’t understand what it actually means. It certainly doesn’t seem to signify job market changes. 

Annual GDP also doesn’t fit its published components. The consumption benchmark, retail sales, fell slightly in nominal terms. The investment benchmark, fixed asset spending, climbed 5.1 percent in nominal terms. These may be a bit optimistic since they don’t incorporate the 2021 GDP upgrade. They’re still slower than nominal GDP.

Net goods exports did gain 7.6 percent. But even a record $875 billion surplus pales in size against $8 trillion in fixed investment and over $6 trillion in retail sales—trade can’t help that much. The budget deficit is on course to be slightly larger than last year. Published GDP expenditure components are again inconsistent with—here clearly slower than—GDP. They get published each month, anyway.

If components were useful, nominal GDP growth would be more like 4 percent, leaving real GDP growth below 2 percent with the official deflator and around 1 percent with a perhaps better deflator. Whatever one believes, there will almost surely be a 2023 rebound. The NBS will proclaim a better Q1, to clearly show the wisdom of suddenly ending zero-COVID. Then Q2 will be much stronger than Q2-22, which saw the Shanghai lockdown.

The second half of this year may be more tense. It might be a time for stimulus, though there’s nothing evident yet. Loan growth slowed a bit in 2022. The stock of outstanding loans is enormous and rapid growth would be both difficult to achieve and dangerous.

Broad money M2 accelerated mildly last year, which prompts the big question: will households keep money on the shelf or revenge consume? There’s plenty to spend – the spread of deposit volume over loans was $6.5 trillion by the end of December. But that built up because Chinese households love saving. COVID is unprecedented; it’s also unprecedented for households to lead a recovery, not follow.

If consumption and imports are only moderately better, commentary about China driving the world economy will be wrong, even if official GDP soars. Contributions to global GDP growth don’t stem from above-average GDP performance. It’s trade that matters. China’s surplus subtracted over $800 billion from the rest of the world’s GDP last year. Its global contribution this year will be found in how that changes.   

Finally, many people will rightly seize on a newly shrinking population. Decline won’t affect 2023 but it will affect 2033. This year should be clearly better for the Chinese economy. In fact, it might be the best for a long time to come.

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