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A Chinese Leap Of Faith

My definition of a miracle is something that cannot happen, but does. If you are a believer, miracles are an affirmation of faith; to a nonbeliever, their appearance reinforces skepticism.

When it comes to China’s economic miracle, I am a skeptic.

Case in point: China’s recently reported second quarter economic growth of 7 percent (annualized), which just happens to be the target set by the Beijing government and its Communist Party strongman, President Xi Jinping.

The resilient growth comes in spite of virtually every other figure, from global oil prices to shipping volumes, indicating that China’s growth has slowed substantially more than its government statisticians are willing to let on. And I don’t blame the statisticians one bit. In Xi’s China, deviating from the government’s official line is more likely to cause severe personal and professional grief than at any time since the anti-democracy crackdown a quarter-century ago.

This gulf between what statisticians find it safe to say and what observers can see makes for a strange picture of the Chinese economy. The Wall Street Journal reported that a spokesman for the National Bureau of Statistics, Sheng Laiyun, maintained during a news conference that the data “objectively described the situation.”

“There are positive signs in the second quarter, with the overall economy stabilizing and staging signs of improvement,” he said.

These claims sound odd coming against a backdrop of a still-slowing economy and regional and national growth figures that don’t align with one another. Economists have also noted that the methodology underpinning Chinese statistics often suffers from data collection shortfalls and a lack of transparency that can hardly surprise anyone who pays attention to how Beijing takes care of its business.

So you either believe in miracles or you disbelieve - until proven otherwise - almost anything you hear from Chinese officialdom, at least as far as the county’s economic situation is concerned. This is the same regime that boldly asserted that freer markets and better allocation of capital would provide the next leg upward for the nation’s prosperity - until last month’s market wipeout led to such market-freeing moves as a temporary ban on IPOs and widespread trading halts on any stocks whose market value is lower than the official listing. China’s 21 largest brokerage firms said that they would buy stock funds in order to stabilize the market as long as the Shanghai Composite Index is below 4,500; the money to do so, to the tune of 260 billion yuan (about $41.8 billion), was provided by a state-backed company.

In a sense, those moves worked. The country’s stock indexes have stabilized. That’s what happens when you prohibit price declines by official fiat. But it isn’t how stock markets are supposed to work. And it isn’t any more real than the country’s miraculous 7 percent growth.

China’s economic progress and its global importance are self-evident and undeniable. But so, too, are the enormous economic distortions that China’s economy continues to accumulate because of the lack of market mechanisms to contain and correct them. Maybe China will actually be the first country in the history of this planet to embark on an extended era of unbroken economic growth year after year, decade after decade, never missing an official target and never seeing a recession.

That would be a miracle. Some may even be inclined to believe it. But you can continue to count me among the skeptics.

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