China’s set to release a raft of key data this week, including the full-year GDP tally for 2024.

In all likelihood, officials in Beijing will claim some measure of success, where that means the NBS will suggest the world’s second-largest economy met the Party’s growth target.

If you distrust the data, no one (other than Xi, maybe) will blame you. And to call the numbers into question doesn’t necessarily entail resorting to ad hominem, although ad hominem works in this context, totalitarian dictatorships being inherently incompatible with humanity’s aspirations for various sorts of freedom.

The idea that you can centrally-plan an economy the size of modern China’s is laughable. The idea that you can centrally plan it in a narrow range around a numerical target is nothing short of ridiculous. But that’s exactly the sort of omnipotence the Standing Committee claims for itself, and in a few days, Xi’s statisticians will say that thanks to the guiding hand of a reincarnated Mao, growth was 5% last year, or thereabouts.

Late last month, Xi effectively pre-announced the results. Quarterly YoY growth for Q4, which’ll be reported alongside the full-year tally, will likewise show the economy grew around 5%.

It’s not so much that I don’t believe Beijing (I mean, I don’t, but that’s a separate issue, or at least it can be). Rather, the deflator’s negative, so… well, I’ll let SocGen’s Albert Edwards, who knows a thing or five about deflation, explain it.

“It is the nominal pulse that is accurately measured. Then, after statisticians make some informed guesses as to what prices are doing, ‘real’ constant price GDP pops up in the spreadsheet,” he wrote back in 2023, alerting anyone unaware as to what’s actually going on with China’s growth readouts. “Hence for China to meet its 5% ‘real’ GDP target merely requires the statisticians to assume prices are falling sharply.”

Of course, prices are falling for some things in China (homes, for example). The point isn’t to cast doubt on the notion that the Chinese economy’s flirting with deflation, rather the point is that’s not a good thing in this context, and there’s something disingenuous in the juxtaposition between Chinese officials’ deflation denials and Chinese statisticians’ penchant for leaning on the deflator to prop up the headline real growth prints.

As the figure shows, “official” GDP growth rates in China are flattered by the deflator in the years since Xi embarked on a Mao-inspired social engineering project.

This isn’t a secret, of course. But most market participants give it short shrift if they mention it at all. The bond market gets it, that’s for sure. This is why Chinese government bond yields continue to make new record lows.

Reports suggest authorities in Beijing are determined that real growth will be 5% again in 2025, which almost surely means they’re assuming a continuation of this same dynamic. And yet they’ll chide you for suggesting the country’s succumbing to deflation. If the deflator’s negative again this year, it’ll make three years in a row, the longest streak in modern history.

I’ll have a lot more to say about China’s economy this week given the (crowded) data docket, so for now I’ll leave this discussion where it is with one final note: Chinese equities are down 5% this year already, and MSCI’s gauge is in a bear market, down some 20% from the October “stimmy” highs.