When things go wrong in totalitarian states a common course of action is to find someone to blame and make a public example of them. In this regard China’s economy is slowing and the bosses of Chinese “managed capitalism” need scapegoats. Every month there is more news of an economic slowdown and now we see that the head of the country’s statistics agency is in trouble. Is China going to kill the messenger carrying bad economic news? Investors have long believed that large parts of Chinese economic data are fudged. Now The New York Times reports that an investigation of the country’s top statistician increases the doubt over reliability of China’s economic data.
The veracity of China’s economic data has been increasingly questioned as the slowing pace of the country’s growth has startled the world. And a new investigation into the official who oversees the numbers is unlikely to inspire confidence.
The Communist Party’s anticorruption commission announced late Tuesday that it was looking into the head of the country’s statistics agency over what it called “serious violations.”
It is unclear whether the investigation into the agency’s head, Wang Baoan, who became the director of the National Bureau of Statistics of China last April, is related to his current role or to his previous one as vice minister of finance. The commission did not release any further details about the inquiry.
Recently minor officials admitted to previously inflating economic figures. The assertion of the government was that since the economy had not really been growing as fast as reported, the decline should be seen as less severe! China needs to get its economic house in order and rather than dealing with the issues at hand they are choosing to kill, or at least imprison, the messenger of bad economic news.
How Bad Is the News?
Some economic estimates put China’s current economic growth at half the government figures at 3.5% instead of 7%. That sort of fudging is what keeps many from investing in China and doing business with Chinese companies. The Economic Times suggests that China may underestimate growth during economic booms and overestimate it during downturns.
The bureau is supposed to provide China’s leaders with an unvarnished assessment of the country’s economic strengths and weaknesses, even while reassuring the public about growth and maintaining consumer confidence. It is also supposed to release enough detailed and accurate information for investors and corporate leaders to make sound decisions about economic and financial prospects.
China needs to be working from unvarnished data if it is to deal with its economic and social issues. Killing the messenger of bad news is a short term solution to confuse the public as to who is really at fault for China’s current problems.
China, Asia, Europe and North America
Every time there is a market disruption in North America, China, the rest of Asia or Europe the bad news follows markets around the globe. Of late the bad news has repeatedly come from China. The answer to the world’s concerns about the Chinese economy is not to kill the messenger carrying bad economic news but rather that the Chinese government become more transparent and move toward open markets. In that regard The Street reports that China may open its market to foreign investors in an attempt to stop the plunge in stock prices.
China is running out of ways to prop up its stock market. So government officials are weighing whether to go after a rather surprising source of funds: individual foreign investors.
Considering the recent implosion in Chinese stocks, the effort may resemble trying to buy insurance while your house is burning down. But China is desperate to bring in more foreign capital to support private enterprise, so it’s thinking of doing it anyway.
So long as the leaders of China present scapegoats when things go wrong, instead of taking responsibility at the top, foreign investors will be well advised to be wary of investing in the casino-like Chinese market.