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China Skews Economic Reports To Ease Stability Fears – Analysis

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By Michael Lelyveld

Vastly different versions of China’s recent economic reports provide clues to the government’s policies and political pressures that have shaped the uncertain recovery from the COVID-19 crisis this year.

The coverage of China’s second-quarter growth figures should have been straightforward enough.

Most of the foreign press and news agencies got it right with their reporting that gross domestic product rose 7.9 percent from a year earlier, based on the official National Bureau of Statistics (NBS) data released on July 15.

But the NBS and China’s state media complicated the story by downplaying the second-quarter figures, defying the convention of reporting results for the most recent period first.

Instead, the NBS headlined its press release with results for the first half, leading its report with the larger year- on-year GDP increase of 12.7 percent. The rate for the second quarter was mentioned briefly a couple of lines below.

The official Xinhua news agency followed the same pattern in its report, playing up the first-half growth rate and covering the second-quarter results in as few words as possible in the third paragraph.

A subsequent Xinhua story on the GDP numbers featured the first-half figures and omitted the quarterly result entirely.

Ordinarily, such details merit little if any attention, but the contrast with the foreign reporting was striking.

Stories by Reuters, CNN and the Associated Press all led with the second-quarter results, ignoring the first-half comparison completely. The South China Morning Post split the difference in its report from Hong Kong with an online headline that covered both the Q2 and H1 outcomes, but putting the quarterly figures first.

The most obvious reason for highlighting the first-half growth is that the 12.7-percent growth rate for the period was higher than that for the quarter, making it less of a drop from the first-quarter pace of 18.3 percent. The second- quarter growth rate was 7.9 percent, revealing a steep decline from the first-quarter performance.

The government has been fighting perceptions that growth has “slowed significantly,” as Reuters said, from the record rebound of the first quarter, which was magnified by comparison with the year-earlier plunge during the COVID-19 lockdown in 2020.

The NBS has long been criticized for “smoothing” its data to avoid any implication of instability. That task has been made tougher by the wild swings of economic contraction and expansion since the first quarter of last year.

“The domestic economic recovery is uneven,” NBS spokesperson Liu Aihua said frankly at a press briefing, according to Reuters. “We must also see that the global epidemic continues to evolve, and there are many external instabilities and uncertain factors,” Liu said.

But state media went overboard with their reporting of the GDP figures by conducting a smoothing operation of their own.

Previous NBS reports from past years have also prioritized first-half growth figures over second-quarter results in its press releases. But this year, state media took the practice to extremes.

Buried reports

On its English-language website, Xinhua glossed over the long-awaited story of the new GDP numbers, choosing instead to top its main page with a report on the Hong Kong Book Fair.

Reports on the NBS announcement were relegated to the business subheading of the Xinhua website, but on the news agency’s main page, the economic story was nowhere to be seen.

Derek Scissors, an Asia economist and resident scholar at the American Enterprise Institute in Washington, said the press treatment of the quarterly results is a sign of the government’s sensitivity to abrupt changes and stability in the economy.

“China typically emphasizes H1 over Q2 and, in general, the fuller set of results. It fits the use of on-year rather than on-quarter changes,” said Scissors.

“In this particular case, Q2 looks like a crash from Q1. It gives a false impression of serious instability,” he said.

“It’s likely that the propaganda arm decided that explaining that the instability is exaggerated may not work and they should just censor the ugly-looking number,” Scissors said.

In recent months, NBS reports have also added calculations over a two-year period, tracking back to pre-COVID levels of 2019 with average annualized growth rates.

“They’re much lower but they’re also typically stable,” Scissors said.

The smoothing effect of the two-year accounting caught the attention of the Associated Press.

“In an apparent effort to reassure the public and financial markets, the government took the unusual step … of reporting (that) average growth in the second quarter and the same period of 2020 was 5.5 percent, up from 5.0 percent for the first quarters of the two years,” the AP said.

The government efforts to bend the economic numbers around its stability concerns are expected to escalate as the year progresses and growth indicators continue to fade.

“Headwinds to growth are likely to intensify during the second half of the year,” said Julian Evans-Pritchard, senior China economist at Capital Economics in a note cited by Reuters.

“China’s COVID-19 export boom appears to have peaked and will unwind over the coming quarters as vaccine rollouts and reopening help to normalize global consumption patterns,” he said.

The government may also be motivated to smooth out the growth numbers for a second significant reason — to counter calls for greater stimulus spending that would keep the first-quarter growth boom from dying down.

Premier Li Keqiang has made clear that he is dead set against a big surge in stimulus after a series of smaller steps including a cut in the reserve requirement ratio for most banks.

Debt weariness

In an uncertain economic and political environment, the government is likely to remain wary about ballooning debt.

Some forecasts for the year appear to be increasingly divergent from the direction of second-half growth rates, producing stimulus pressures.

“Based on the current situation, if policymakers do not act, the GDP figure in Q4 could fall out of the reasonable range as data from (the) last Q4 was shining,” said Xing Zhaopeng, senior China strategist at Australia and New Zealand Banking Group (ANZ) in Shanghai, quoted by Reuters.

In April, the International Monetary Fund raised its forecast for China’s GDP growth this year by 0.3 percentage points to 8.4 percent. In late June, the World Bank also added 0.6 percentage points to its forecast, projecting growth of 8.5 percent.

Despite the bullish outlooks of the multilateral lenders, China’s government has stood pat with Li’s lower forecast of “above 6 percent” growth, made in March.

The government’s less ambitious goal may have been designed to be exceeded more easily, giving it greater bragging rights for its policies in the Communist Party’s centennial year.

Another explanation is that the government knew that the economic damage from the COVID crisis ran deeper than its recovery claims made it out to be.

Whatever the reasons, the higher forecasts of the IMF and World Bank may now become hurdles for the government’s claims of success, if COVID cases continue to crop up and overshadow consumer demand.

One measure of the pressures on the government is the heavy-handed news coverage and manipulation of the GDP data, even though the second-quarter growth rate was expected to drop back from the first-quarter surge.

“It’s not even a bad performance or genuinely unstable. It just looks unstable, and that’s almost as scary,” Scissors said.

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