For All Its Heft, China’s Economy Is a Black Box

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from The Wall Street Journal,

China’s economy is difficult to assess amid murky politics, unreliable data and opaque decision making.

For sheer clout, China’s economy outweighs every country in the world save the U.S. But on transparency, it remains distinctly an emerging market, with murky politics, unreliable data and opaque decision making.

This veil dims the understanding of China’s economy and is an important reason its recent slowdown has produced so much turmoil.

Economists widely doubt that China grew at a robust 7% pace in the second quarter, as the country’s official statistics say. Citing other data, such as power generation and passenger travel, some think the rate might be as little as half that.

Similarly, when the People’s Bank of China devalued its currency two weeks ago, a step that sparked much of the recent market upheaval, officials couched the move as part of a long-term effort to align the yuan’s value more closely with market forces. Some outside analysts, noting that the PBOC isn’t independent, saw a more political motive: to boost exports and thus bolster the Communist Party’s credibility and hold on power.

In many ways, China is more transparent than it was a decade ago, and also no worse than some other countries whose troubles have roiled world markets, such as Mexico or Russia.

The difference is size.

China represents 15% of world economic output. It is a major export market for industrialized countries such as Japan and Germany as well as for commodity exporters like Brazil and Australia. Its economy contributes a sizable chunk of the profit growth of many Western multinationals.

Japan accounted for a comparable share of world GDP when its stock and property bubbles imploded in the early 1990s. But Japan was a member of the Group of Seven advanced economies, with democratically accountable and stable institutions. China is far harder to read than any member of the G-7.

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