◎ Whenever the CCP admits to something, the reality is usually much worse than what is admitted.
China’s economic growth slowed to 6.2 percent in the second quarter of 2019, according to statistics from China’s National Bureau of Statistics. Many commentators noted that China’s Q2 2019 growth was the weakest in at least the past 27 years, including United States President Donald Trump. “The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries,” he tweeted. “In the meantime, we are receiving Billions of Dollars in Tariffs from China, with possibly much more to come.”
The Chinese communist regime challenged Trump’s claim about the ill effects of the trade war on China while claiming that domestic factors were the reason for poor economic performance. “The US says that China wants to make a deal with it because of the economic slowdown. Such allegation is entirely misleading,” said Chinese foreign ministry spokesman Geng Shuang. “Chinese economic growth slows down because of restructuring. The credit doesn’t go to the White House,” wrote Global Times editor-in-chief Hu Xijin on Twitter. Meanwhile, the English edition of the Global Times published an editorial titled, “US remains oblivious to China’s trade war attrition stamina,” which claims that China’s economic “soft fluctuations and reduced double-digit growth” were “already in place before the US-launched trade war.” Further, China’s weak economic growth is a “natural reaction to national economic restructuring and continued upgrades. The trade war is merely an extra variable among normal circumstances.”
China’s National Bureau of Statistics was a little more forthcoming in explaining the weak Q2 growth. “In the first half of the year, China faced a complicated international and domestic situation,” said a July 15 report on the Q2 economic data. “Economic operations continue to remain within a reasonable range, overall stability endures, and the development trend is steady and progressive.”
We believe that the Chinese regime’s latest rhetoric on economic growth and Trump’s tariffs belies the impact of the trade war on China’s economy.
Our take:
1. The Chinese Communist Party deploys different propaganda strategies when targeting domestic or international audiences. Specific to the trade war, the CCP seeks to downplay the impact of Trump’s tariffs at home to “maintain stability” in the regime. Thus, the CCP opts to minimally mention the trade war and U.S. tariffs while blaming the “complicated international and domestic situation” for poor economic performance in domestic propaganda.
Externally, the CCP promotes the following propaganda narratives:
- The U.S. should seek “win-win” outcomes with China and end the “protectionist” trade war, which is harming the global economy and the multilateral trading system;
- Trump’s tariffs and the trade war have little to no impact on China’s economy;
- China’s economy is experiencing “changes” due to “national economic restructuring and continued upgrades,” and not because of the trade war.
We believe that the CCP was forced to craft the last two narratives to deflect attention away from the effectiveness of Trump’s tariffs in light of China’s poor Q2 economic growth. In contrast, CCP propaganda boasted about China’s ability to fight and withstand a trade war with America between Q2 2018 to Q1 2019.
2. Based on our long-term research into the CCP, we have noticed that whenever the CCP admits to something, the reality is usually much worse than what is admitted. For instance, the CCP officially “admitted” that it was using the organs of executed prisoners for organ transplants in 2007, or one year after allegations that the CCP was carrying out for-profit, live organ harvesting of prisoners of conscience first surfaced. The CCP’s “admission” of using executed prisoners’ organs, a controversial and ethically questionable act in itself, served the purpose of deflecting attention away from the more serious live organ harvesting allegations.
In the case of the trade war’s impact on China’s economy, the CCP has more to lose by admitting that Trump’s tariffs were the cause of the rapid worsening of the Chinese economy in Q2 2019 than “admitting” that China “self-inflicted” domestic problems (“national economic restructuring and continued upgrades”), but not Trump’s tariffs, resulted in the worst quarterly economic growth in 27 years. Given the organ harvesting example above, however, there is a very good chance that China’s economy was not only badly affected by the trade war, but is doing far worse than the official 6.2 percent. The recent slumping of the South Korean (down 0.4 percent in Q1 2019 as compared to Q4 2018) and Singaporean (down 3.4 percent year-on-year) economies, which are vulnerable to economic changes in China and the trade war, adds to our suspicion that all is not well on the mainland.
3. Misdirection aside, we believe that the CCP propagandists could also be “admitting” that China’s economic decline is “self-inflicted” and not due to the trade war in the hopes that the U.S. reconsiders the levying of additional tariffs. U.S. tariffs on all Chinese goods would severely impact the economy, and serious economic decline would in turn shatter the Party’s political legitimacy.
The “self-inflicted” narrative might be good for misdirection, but is very weak as an argument against tariffs. China’s stock market and economy saw steep declines during the trade war period, and it would be hard to convince casual observers that the trade war had nothing to do with the declines whatsoever. We do not believe that the “self-inflicted” propaganda narrative will sway the Trump administration from its current course. If anything, the CCP’s taunts could end up encouraging President Trump to impose additional tariffs at an earlier date.
4. Foreign experts have argued that China’s domestic issues, and not the Sino-U.S. trade war, is the main reason for China’s worsening economy. Some explanations include:
- Lack of economic reform and opening up;
- Years of over-reliance on credit expansion and overexpansion for development, which leads to bad debt;
- A slowdown in construction and industrial output in China.
We concur with the explanations to a degree. In fact, we wrote in 2018 before the trade war that China’s economy has been steadily worsening for some years. However, we believe that the trade war is a catalyst and the main reason for the recent acceleration in China’s economic deterioration. Weak GDP growth aside, the trade war has seen China make less from trade surpluses with America, forced foreign capital to leave China as companies seek to avoid tariffs, and resulted in declining public consumption (which in turn influences the decision of foreign companies to pull out of China). Meanwhile, the slowdown in construction and industrial output is linked to declining consumption power and the massive property bubble on the mainland; as people cannot afford property with sky-high prices and automobiles, construction and industrial output correspondingly shrink. Without the trade war, the Chinese economy would likely see the same problems above, but would experience a slower rate of deterioration. A slower economic decline would also allow the CCP better “keep up appearances” (“形勢一片大好”) using propaganda and classic stimulus measures to maintain market confidence in China.
Get smart:
The CCP tends to hide very serious problems by “admitting” less severe problems. Businesses, investors, and governments must be able to decode the shifts in propaganda rhetoric to spot the Chinese regime’s hidden risks.
