China calls on investors and entrepreneurs to bail out an economy any remaining data suggests is ship-shape.

(Originally published July 24 in “What in the World“) China’s publication last week of new quarterly economic data brought not only new alarm about the health of the second-largest economy, but also fresh concern about whether the data isn’t hiding something much worse. The government’s latest response adds weight to those concerns.

For years, economists have complained that China’s GDP figures don’t always quite add up. The latest numbers are no exception. While the government reported a disappointing year-on-year growth rate of 6.3% in the second quarter, macro bean counters couldn’t help but notice that, working backward from the quarter-on-quarter growth rates, that China’s economy appeared to have grown 6.8%.

The National Bureau of Statistics explained the mismatch as having been caused by seasonal adjustments to quarterly growth numbers in 2022. Such adjustments are common among economic authorities, who use statistical revisions to basically allow for the kinds of one-off oddities that can skew comparisons between shorter-term comparisons. If, for example, a popular lunar holiday that in most years appears in, say, April, slips by virtue of the vagaries of the Gregorian calendar into March this year, it can make the first quarter consumption figures appear much larger relative to the second quarter than they otherwise might have been. To reduce the apparent anomaly, authorities put a mathematical thumb on the economic scale.

China’s challenges with data consistency are also not unusual in a developing nation. Gathering accurate economic numbers for things like inflation require getting reliable sales data from businesses, which in developing nations may or may not keep accurate sales records.

Politics also comes into play with or without urging by authorities. For years, economists noticed that China’s provincial GDP numbers, when combined, added up to a national economy that was bigger and faster-growing than what Beijing was toting up. The reason: Provincial officials’ own promotions in the Communist Party depended on their economic performance, so they were embellishing their numbers, sometimes subtly, sometimes fantastically. Small exaggerations to GDP in one province added up to a big discrepancy at a national level.

And Beijing’s own GDP reporting has also tended to raise eyebrows among economists. Even in quarters when it was clear to anyone with eyes that growth was stumbling, the economy’s official performance would come in at or near the official target.

Eventually, economists have come to look at China’s GDP numbers as a narrative, like many on TV, “based on a true story.” They may not be spot on, but they are at least “directionally accurate.” Why not just ignore them, then? “Because there is no authoritative alternative.” And at the end of the day, economists must rely on data from somewhere to do their jobs.

Economists have periodically latched onto alternative indicators as proxies for gauging growth trends, like steel production or power consumption. But whenever authorities in Beijing get wind that such an indicator has gained currency, its reporting gets put into a format that make annual comparisons more difficult to calculate—reporting it based on an index, for example, or expressing monthly data relative to a point at the start of the year. Recently, popular indicators have simply disappeared from the official reporting calendar, raising new questions about whether Beijing was trying to whitewash its economic performance.

Another rough proxy is investment in overseas baubles. When things are going well in China, Chinese money into high-end foreign property tends to rise. But the reverse is happening now. According to the American Enterprise Institute, Chinese capital is fleeing trophy real-estate in the West, and instead corporate capital is flowing into securing raw materials and production in developing countries. This more defensive investment strategy not only reflects more somber economic prospects, but the fact that China is adjusting to a more hostile Western political climate. Washington is restricting investment into China, maintaining sanctions on goods out of China, and encouraging U.S. companies to diversify their supply chains out of China.

Property trends are another proxy. And the latest is that commercial landlords are offering retail tenants discounts on their rent to keep them from closing shop. Even after Covid restrictions were lifted late last year, vacancies in prime retail space in Shanghai were still just below 8%, more or less where they were last December.

Adding to the questions over the veracity of China’s economic data are recent restrictions on access to Wind, the financial and economic database that is China’s equivalent of Bloomberg. The result: a China “truth” discount. Among investors closely watching China, it’s become given that however poorly Beijing may admit the economy is doing, it’s very likely doing much, much worse.

The 6.3% growth in the second quarter is worse than it looks, in part, because it’s off the low base of 2022, when China’s economy was slowed by Covid lockdowns. Economists were expecting the official estimate to leap much higher. That it didn’t suggests things are even worse than Beijing is letting on.

But one dead giveaway that things aren’t great is when the government snaps into action. Last week, it did. Xi Jinping announced a 31-point recovery plan designed to revive China’s beleaguered entrepreneurs, small businesses and the private-sector economy as a whole. Rather than simply cut interest rates and risk stimulating capital outflows, weakening the renminbi, and inflating the debt bubble, Xi has aimed to target stimulus to private sectors of the economy, particularly in technology, that might be able to revive growth.

The new plan reportedly deals with a range of issues businesses have been complaining about, including fair competition, financing support, intellectual property rights, legal protection, market entry, and payment defaults. The plan may also counter criticism that Xi has been punishing the private sector in favor of state-owned sectors to rein in China’s experiment with unbridled capitalism and increasingly glaring gaps between the class of super-rich it was creating and the rest of China. Xi had responded with a backlash against big Tech companies like Alibaba and what many said was an alarming rollback of free-market reforms in favor of state-owned enterprise.

The plan promises to ease red tape by replacing the need for investment permits with a negative investment list. It also aims to improve mechanisms for handling payment defaults and to improve the legal machinery for entrepreneurs—all to redress what small businesses feel has been the growing dominance of huge, state-owned enterprises in recent years.