China’s GDP: Smoke, Mirrors, and a Coming Slowdown

China’s meteoric economic rise is often told through headline GDP figures: breakneck double-digit growth through the 2000s, a gentle glide from 10% to 6% by the late 2010s, and a resilient 5% expansion even amid global pandemic disruptions. But behind these official numbers lies a troubling question: What if China’s GDP growth has been significantly overstated, masking an economy that is in fact stagnating under the weight of structural weaknesses?

In this long-form analysis, we examine mounting evidence – from satellite images of night lights to suspiciously smooth official statistics and candid admissions of data fabrication – suggesting that China’s economic performance is not all that Beijing claims. We also explore why these overstatements occur, rooted in the political economy of the Chinese Communist Party (CCP), and how decades of credit-fueled investment, demographic decline, and faltering productivity point to a long-term slowdown that no statistical sleight-of-hand can hide.

Overstated GDP growth is not a trivial technicality; it strikes at the heart of China’s governance model. The CCP has staked its legitimacy on delivering ever-rising prosperity, making GDP a “de facto” report card for officials up and down the hierarchy. As one former top leader, Li Keqiang, famously quipped, official GDP figures are often “man-made” and unreliable. If the skeptics are correct, China’s actual growth might be dramatically lower than reported – perhaps only half the official size over the past decade, according to some estimates. Such a revelation would reframe China’s status as the “world’s growth engine” and have profound implications for global markets and policymakers. It would also reveal the depth of China’s domestic challenges: from provinces padding their statistics to meet political targets, to an aging workforce and a debt-laden property sector dragging on real activity.

In this article, we will dissect the evidence that China’s GDP has been inflated, drawing on empirical data and research from economists and analysts like Thomas Rawski, Luis R. Martínez, Logan Wright, and others. We will look at alternative indicators – electricity usage, freight volumes, bank lending, and even the luminosity of China’s night skies – that paint a more muted picture of growth. We will revisit the “Li Keqiang Index,” born from a leaked 2007 candid discussion, as a benchmark of real economic trends. We will examine documented cases of data manipulation at the local level and the systemic incentives that encourage officials to “make the numbers” at any cost. Finally, we will connect the dots between inflated statistics and China’s structural economic problems: a model overly reliant on construction and debt, a shrinking population and workforce, rising youth unemployment, and diminishing returns on massive infrastructure investments.

The goal is not to paint a doom-and-gloom caricature, but to offer a critical, evidence-based appraisal of China’s economic health – one that challenges the official narrative. As Beijing itself pivots from high-speed growth to what President Xi Jinping calls “high-quality development,” acknowledging the reality of slower growth is more important than ever. The data issues discussed here suggest that China’s real growth may have already downshifted significantly, even if the political machinery has been reluctant to publicly concede the extent of the slowdown. In the long run, confronting these truths will be crucial for China’s policymakers (and their global counterparts) to manage expectations and craft sustainable economic strategies.

GDP as Political Currency: China’s Incentives to Inflate

Few countries imbue GDP figures with as much political weight as China does. Since the reform era began, Chinese officials’ careers have often been made or broken by their ability to hit growth targets set by Beijing. Promotion within the CCP cadre system historically hinged on delivering rapid local economic expansion. This system, described by scholars as a tournament of “performance-based cadre evaluation,” created intense pressure on local governments to report high GDP growth rates (Li and Zhou 2005). In the 1980s and 90s, many provinces vied to outdo one another, knowing that impressing superiors with rosy statistics could secure one’s ascent up the CCP ranks (Maskin, Qian, and Xu 2000). Over time, “GDP worship” became ingrained in China’s bureaucratic culture.

By the late 1990s, this dynamic led to a notable case of apparent overstatement that caught the attention of outside economists. Thomas G. Rawski, a professor at the University of Pittsburgh known for his deep dives into Chinese statistics, raised alarms about China’s 1998 GDP figures, which officially showed 7.8% growth. Rawski found this dubious in light of a host of contradicting indicators: energy consumption was actually falling, industrial output was sluggish, deflation had set in, and even passenger air travel – which one would expect to boom as incomes rise – barely grew. As Rawski later recounted, “the single most convincing element [contradicting the official growth claim] was civilian airline traffic” – despite steep airfare discounts and rising incomes at the time, airline passenger volume increased only 2.4%, utterly inconsistent with nearly 8% GDP growth. He also noted that the year saw one of China’s worst floods of the century, yet official data incredibly showed farm output rising in almost every province. In short, the on-the-ground reality in 1998 did not match the glossy GDP number.

What happened? Rawski argues that 1998 marked a turning point where political imperatives overrode statistical integrity. Faced with the fallout from the Asian Financial Crisis and a sputtering domestic economy (with falling factory employment and rural incomes), Beijing had unveiled an 8% GDP growth target for 1998 to project confidence. Local officials were explicitly told to ensure their slice of the economy hit this number – orders that trickled all the way down the hierarchy. In one instance, Shanghai’s municipal government instructed its districts to plan for 12% growth, rejecting any report that didn’t meet the quota. Under such pressure, statistical falsification became inevitable. “Officials make statistics, and statistics make officials,” Rawski quipped, encapsulating how careers depended on producing the “right” numbers. With verification weak and truth-telling unrewarded, local bureaus inflated and even fabricated data to avoid political blame. The result was a significant overestimation of China’s late-90s growth: by Rawski’s estimate, actual GDP growth from 1997–2001 was likely in the low single digits cumulatively (perhaps near zero in 1998), instead of the roughly 25% total growth reported for that period. In other words, the Asian crisis knocked China’s economy nearly flat, but the official statistics miraculously glided over the turbulence.

Beijing was not entirely blind to this problem. Premier Zhu Rongji – known as a tough economic technocrat – reportedly complained in 2000 that “statistical falsification and exaggeration were rampant,” comparing the situation to deceiving the nation. A retired chief of the National Bureau of Statistics (NBS) lamented that 1998 had been particularly hard for gathering accurate data, warning that “deceiving the nation and tricking the people can lead to untold disasters.” Yet, even as central leaders acknowledged issues in broad strokes, they were beneficiaries of the stability (or “face”) that massaged data provided. Rawski noted a political rationale: 1998 was the first year of a new administration in Beijing – Zhu Rongji had just become premier – and with the economy in trouble, there was an impulse to preserve legitimacy by not showing a sharp slowdown. Inflated growth data helped buy time and public confidence while stimulus measures were enacted behind the scenes.

This systemic incentive to inflate hasn’t been limited to the 1990s. Through the 2000s and 2010s, the CCP continued to set annual GDP growth targets (typically announced at the National People’s Congress each spring), and local officials understood that meeting or exceeding these targets was a must. Often the sum of provincial GDP would absurdly exceed the national figure compiled by the NBS, implying that many provinces were padding their stats (a phenomenon so common that Chinese economists call it “GDP aggregation discrepancy”). Over time, the central NBS improved techniques to adjust and reconcile data, but mistrust remained prevalent. A Chinese saying emerged in policy circles: “Only heaven knows China’s true GDP.”

Perhaps the most famous indictment of China’s GDP credibility came from Li Keqiang – who, years before becoming China’s premier, candidly admitted he didn’t trust the GDP numbers coming out of his own province. In 2007, Li was the CCP secretary of Liaoning, a northeastern rust-belt province, when he told the visiting U.S. Ambassador that GDP figures are “man-made” and thus unreliable. Instead, Li said, he looked at three concrete indicators to gauge the economy’s health: electricity consumption, rail cargo volume, and bank lending. “All other figures, especially GDP statistics, are for reference only,” he remarked with a smile. This revealing comment was recorded in a U.S. diplomatic cable (later leaked via WikiLeaks), and it caused a stir when made public in 2010. Here was a top Chinese leader essentially confirming what skeptics had long suspected: that China’s local GDP data in particular was deeply flawed. Li Keqiang’s three preferred indicators later became enshrined (half-jokingly) as the “Li Keqiang Index,” an alternative proxy for China’s growth that many analysts began to track.

Why would someone like Li distrust Liaoning’s official data? The answer became clear a decade later. In 2017, Liaoning’s governor admitted that from 2011 to 2014, the province had fabricated its economic data, including fiscal revenues, by significant margins (at least 20% in revenue each year). This period overlaps with Li Keqiang’s tenure in Liaoning, meaning Li likely knew local officials were cooking the books while he was there. And Liaoning was not an isolated case: in the late 2010s, a flurry of statistical cheating scandals broke into the open. In early 2018, the city of Baotou in Inner Mongolia revealed it had overstated its 2017 fiscal revenue by nearly 50% due to “fake additions.” The same month, Inner Mongolia’s regional government slashed its 2016 industrial output figure by 40% and its fiscal revenue by 26% after uncovering fraud. Around that time, the large municipality of Tianjin admitted that one of its districts (the Binhai New Area) had inflated its GDP by about one-third in 2016. And as noted, Liaoning’s fabrications in 2011–14 (under then-party boss Wang Min, who was later imprisoned for corruption) made it the first province to openly confess to years of faked data. These revelations confirmed what many analysts had long assumed: Chinese local governments routinely exaggerate economic statistics. The motivations were clear – promotion incentives and political pressures – and the means were plentiful in an economy where so much data collection is done by bureaucrats with limited oversight. GDP, being a statistical aggregate of many components (industrial output, services activity, prices, etc.), can be manipulated in various ways: inflating production figures, under-reporting inflation (to boost “real” growth), or simply making up numbers for components that are hard to verify. In many cases, the fibs were tied to debt-fueled projects: for instance, local officials might borrow heavily to build infrastructure (more on this later), temporarily boosting activity, but then exaggerate the payoff by reporting higher revenues or output than actually materialized. As Beijing began cracking down on excessive local debt in 2017–2018, some of these fictions came to light when auditors scrutinized the books.

It is important to note that the central government was not entirely complicit in these local manipulations – in fact, it often had to rein them in. The NBS has periodically revised national accounts when blatant discrepancies emerge. By 2018, even President Xi Jinping’s administration recognized the perverse incentive problem and shifted away from a pure GDP focus. Xi told party cadres that China had moved into a “new era” where quality of growth should trump speed, and officials should not be blindly assessed on GDP alone. In 2014, the CCP reportedly stopped using numerical GDP targets in evaluating provincial leaders’ performance (Zeng and Zhou 2023). Research by Zeng and Zhou confirms a remarkable shift around 2013: before then, cities governed by mayors nearing the age cutoff for promotion (hence desperate to impress) showed an uncanny boost in reported GDP growth – roughly 3.4 percentage points higher – that did not show up in other indicators like night-light data. After 2013, when GDP was deemphasized in the promotion calculus, this pattern diminished. In other words, when the rules of the game changed, the numbers became a bit more trustworthy at the local level (at least for a while). Still, old habits die hard: even in recent years, China’s overall GDP figures remain suspiciously close to official targets and unnaturally smooth from quarter to quarter. This suggests that top-down pressure to hit a certain narrative – “around 6% growth,” for example – continues to influence the statisticians, whether via genuine last-minute economic stimulus or creative accounting or both.

The Li Keqiang Index: A Reality Check from Railcars and Lights

When Li Keqiang revealed his three preferred metrics – electricity, rail freight, and loans – he gave outsiders a blueprint for an alternative gauge of China’s economy. The Li Keqiang Index (LKQI), as it became known, was first popularized by The Economist in 2010, and later replicated by investment banks and researchers. The logic is straightforward: these three indicators are harder to falsify at scale and tied to tangible economic activity. Electricity consumption correlates with industrial output and commercial activity; railway cargo volumes reflect the movement of raw materials and goods; and bank lending (especially medium-to-long-term loans) indicates financing for projects and businesses. By tracking the growth of these “real” indicators (often combining them with appropriate weights), one can infer an implied GDP growth rate.

Historically, the Li Keqiang Index tends to be more volatile than official GDP. It booms higher during upswings and plunges lower during slowdowns, whereas official GDP often looks relatively placid. For example, during the global financial crisis of 2008–09, China’s official GDP growth dipped from 9% to just over 6% before rebounding – a moderate swing thanks to massive stimulus. But the LKQI suggests the swing was far sharper: electricity and freight data in late 2008 indicated a near stall in output (confirmed by anecdotes of factories shutting down), followed by a torrid, credit-fueled rebound in 2009–2010. In 2015, the contrast was even starker. That year, China’s official GDP grew 6.9%, its slowest in 25 years – yet still robust by international standards. However, the Li Keqiang Index (and other “proxy” measures) signaled a much more dramatic slowdown in the old industrial economy that year. Rail freight volumes collapsed by over 10% in 2015, the biggest annual drop ever recorded. Electricity consumption was almost flat (with power usage in heavy industry actually shrinking around 1%). The unexpected plunge in these metrics fanned skepticism that “real economic growth [was] already much weaker than official data suggest,” as Reuters noted at the time, citing analysts who thought China’s true growth could be several percentage points lower.

Critics of the Li Keqiang Index, however, are quick to point out its limitations. China’s economy has changed dramatically since Li’s days in Liaoning. Services now account for over 50% of GDP, and consumer industries and high-tech sectors have grown, meaning electricity usage and freight tonnage don’t capture as much of the value-added as before (a surge in digital services or e-commerce, for instance, might show up less in power statistics). During the COVID-19 pandemic, this issue became clear: services (like hospitality, tourism, education) were battered by lockdowns, while heavy industry (often backed by state investment) held up. The Li Keqiang Index – based heavily on industrial inputs – did not register the full extent of the pandemic hit to GDP, which was concentrated in contact-intensive services. In fact, one analysis showed that in 2020–2022, the official GDP growth figures were lower than what a naive LKQI would predict, precisely because services (not captured by LKQI) lagged badly. As a result, some argue that recent official data might if anything understate certain rebounds (for example, a revival in consumer spending in 2023 might not fully show in freight or electricity data). This was noted by China’s state media, which sometimes countered skeptical takes by highlighting areas where electricity per unit of GDP is falling due to efficiency gains or economic restructuring.

Yet, even acknowledging these caveats, the Li Keqiang Index remains a valuable sense-check on Chinese GDP. When its components diverge strongly from GDP, it’s usually GDP that eventually “catches down” – either via later revisions or via policy admissions that things were worse. And the political origins of the index are telling: Li Keqiang preferred those hard indicators because he knew they were less gameable. In the aftermath of the 2015 industrial slump, the government itself stopped obsessively pushing industrial output quotas and instead began emphasizing quality of growth. The period was euphemistically labeled the “new normal” of slower growth. Implicitly, Beijing was conceding that the double-digit days were over – though it never admitted any past exaggeration.

Some scholars like Carsten Holz (2014) have argued that at the national level, China’s statistics have improved and may be more accurate than the skeptics allege, even if local data are dodgy. Holz notes that the NBS undertakes its own surveys and has, over time, adjusted methodologies closer to international standards (e.g., including owner-occupied housing services in GDP). Indeed, China’s statistical capacity scores as measured by the World Bank have risen into the upper tier of developing countries. Holz’s nuanced view is that while local GDP reporting is problematic, the national Bureau of Statistics does not simply sum up local numbers; it uses separate calculations and often applies a deflator for inflation that might bring real growth more in line with reality (Holz 2014). Nonetheless, even Holz concedes that the NBS operates in an “increasingly politicized environment” and lacks the authority to force fully accurate reporting from provinces. In remarks to the press, Holz agreed that Rhodium Group’s extremely low growth estimates for 2022–23 were “plausible,” given the pressures on officials to use “outright data fudging” or creative compilation methods to achieve desired outcomes. In other words, the system still incentivizes smoothing over ugly numbers – as was evident when, in 2023, the NBS simply stopped publishing youth unemployment data after it hit a record high (more on that later).

“By the Lights of Heaven”: Satellite Imagery and GDP Fraud

Perhaps the most compelling new evidence that China (and other authoritarian regimes) inflate their GDP comes not from within the country, but from outer space. Over the past decade, economists have increasingly turned to satellite-recorded nighttime light (NTL) data as an independent proxy for economic activity. The idea, pioneered by researchers J. Vernon Henderson and others, is simple: as an economy grows – factories hum, cities expand, infrastructure spreads – more light is visible at night (from streetlights, buildings, etc.). Nighttime luminosity correlates strongly with GDP in normal conditions, and it has the advantage of being measured uniformly by satellites, beyond the reach of any government’s manipulation.

Luis R. Martínez, a professor at the University of Chicago, made ingenious use of this data to test whether dictatorships exaggerate growth. In a study published in 2022, Martínez compared the elasticity of reported GDP to night lights growth in democratic versus autocratic countries (Martínez 2022). In plainer terms, dictatorships report 35% higher GDP growth on average than the night-light data would justify. The inescapable inference is that these regimes are overstating their economic performance by around one-third each year, cumulatively leading to dramatically overstated GDP levels over time.

China, being both authoritarian and rapidly growing (at least until recently), emerged as a major outlier in Martínez’s analysis. In fact, by his calculations, China ranked near the top in terms of excess GDP growth reported relative to its night-light growth (Martínez 2022, 2750). Over the period studied, China’s official aggregate growth appeared to be almost 30% above what one would expect from its lights data. One way to interpret this: if China’s true annual growth was, say, 5%, the officials might be reporting around 6.5–7% instead. Compound such a gap over a couple of decades and the level of GDP gets overstated by a huge margin. Indeed, extrapolating Martínez’s findings, some observers suggested that China’s economy could be 20–30% smaller than the official size. One analysis cited by the Washington Post mused that China’s GDP in 2019 might have been $4–6 trillion lower than the stated figure of approximately $14 trillion. The Investors’ Business Daily, summarizing Martínez, went further to say China’s GDP might be 36% smaller than claimed – implying that China, rather than being neck-and-neck with the United States in total output, could actually be little more than half the U.S. economy. While the exact percentages can be debated, the direction of bias is clear: China’s official growth has been consistently inflated in the post-2000 era.

Even Chinese officials have implicitly admitted this through their actions. When reality becomes too divergent from the narrative, the data themselves sometimes disappear. A salient recent example: in 2023, after months of soaring youth unemployment rates (reaching 21.3% in June, a record high), the NBS abruptly suspended publication of the youth jobless figure altogether. The bureau claimed it needed to “recalculate methodology” – a move met with public mockery (social media users compared it to an ostrich burying its head in the sand). But most saw it for what it was: an attempt to hide an embarrassing indicator that runs counter to the official line of a robust post-COVID economic recovery. When combined with other moves – restricting access to certain financial databases, censoring negative economic analyses – it paints a picture of a government increasingly uncomfortable with inconvenient data. This isn’t outright fabrication of GDP, but it’s part of the same spectrum of behavior: managing perceptions by managing statistics.

Martínez’s study cleverly quantifies something that Li Keqiang knew qualitatively. It provides external validation that China’s reported growth in the era of Xi Jinping (and before) likely contains quite a bit of “water” (to use the Chinese slang for inflated data). As a result, by the late 2010s China may not have been growing as fast as believed. For example, official growth from 2014–2019 averaged about 6.7%. If one subtracts an exaggeration factor (say 1–2 percentage points per year), the true growth might have been more like approximately 5% or less – a significant difference, essentially cutting annual growth by a quarter or more. If applied to GDP levels, an economy claimed to be $18 trillion might realistically be $14 trillion. Such alternative estimates remain speculative, but they align with on-the-ground observations like subdued consumer spending, deflationary price trends, and the fact that China did not surpass the U.S. in nominal GDP by the early 2020s as once expected. It’s quite possible that China’s economy was never as large or dynamic in the 2010s as the rest of the world was led to believe.

The High Cost of Inflated Growth: Debt, Property, and Ghost Cities

It is one thing to claim China’s GDP growth is overstated. But if so, how has China managed to report high growth even as underlying momentum slowed? The answer can be found in the shape of China’s growth model: a model increasingly driven by debt-financed investment in infrastructure and real estate, which pumped up short-term GDP at the expense of efficiency and sustainability. To sustain headline growth rates, China undertook a dramatic expansion of credit after 2008, the effects of which are still playing out in the form of a looming structural slowdown.

By many metrics, China is the most indebted emerging economy in history. Its total debt (government, household, and corporate) has surged from around 150% of GDP in 2008 to roughly 280–290% of GDP by 2023, a level usually seen only in advanced economies. The World Bank noted that by 2022, China’s non-financial sector debt hit an all-time high of 287% of GDP. Each year, the debt-to-GDP ratio has climbed further, meaning debt was growing faster than the economy. In fact, on average from 2008 to 2020, China’s debt-to-GDP ratio rose by roughly 12 percentage points per year. Even in more recent years when credit growth slowed, nominal GDP growth slowed even more, causing the debt burden to keep rising. This is a textbook red flag: it implies diminishing returns on investment and the need for ever more credit to generate incremental growth. One analysis found that by the late 2010s, each additional yuan of GDP required three to four yuan of new credit, compared to near parity a decade prior (Magnus 2018).

Where did this mountain of money go? Largely into fixed assets – infrastructure, housing, commercial real estate, and industrial capacity. China embarked on a massive build-out of highways, railways, airports, power plants, and entire new cities. This investment splurge certainly contributed to real economic development (particularly in the 1990s and early 2000s when there were genuine infrastructure bottlenecks to alleviate). However, by the 2010s, many observers noted that China was increasingly building bridges to nowhere and “ghost cities” – projects with dubious economic rationale, undertaken mostly to meet growth and development targets or to placate local interest groups (construction SOEs, local bosses, etc.). Infrastructure investment started showing sharply diminishing returns. Jean C. Oi, an expert on Chinese political economy, quipped that local governments became addicted to GDP “achievement projects” – gleaming monuments like huge city squares, grand theaters, and excess highways that pad GDP statistics and officials’ résumés, even if usage is low.

Empirical evidence backs this. A 2020 paper by economists Kenneth Rogoff and Yuanchen Yang estimated that the real estate sector (including construction and property services) accounted for about 29% of China’s GDP – an astonishing share. This is far higher than in most economies; for comparison, at the peak of the U.S. housing bubble in 2006, residential construction plus related services were about 16–18% of U.S. GDP. In Japan’s late-1980s bubble, property-related activity was estimated around 20% of GDP. China has gone well beyond these, constructing housing and infrastructure at a pace that outstripped even its rapid urbanization. Rogoff and Yang labeled it “Peak China Housing” – a boom poised to turn to bust. They warned that a 20% drop in real estate activity could shave between 5 and 10 percentage points off GDP – essentially wiping out one or two years of growth.

The symptoms of overbuilding are visible across China. By various estimates, roughly 20% of apartments in Chinese cities – some 50 to 65 million units – sit vacant (Rogoff and Yang 2020; see also Wang et al. 2020). Entire districts like Kangbashi in Ordos, Inner Mongolia, became infamous as “ghost cities” – built for hundreds of thousands of residents who never materialized. Skyscrapers, shopping malls, and highways have been built in third-tier cities that struggle to fill them. China’s high-speed rail network, while a technological marvel, was extended to far-flung interior regions where ridership is scant and operating losses mount. The state-owned railway company has over $1 trillion in debt and many routes that will likely never be profitable. In one striking example, China built the world’s largest airport (by size) on an artificial island off Dalian – a city that already had an airport and is home to just 5 million people. The new airport, designed to handle 80 million passengers a year (nearly as much as London’s Heathrow), epitomizes the “build first, find use later” approach. Projects like the extravagant Xiong’an New Area – a pet initiative of President Xi to create a new city from scratch – involve hundreds of billions of dollars, forcible relocation of residents, and uncertain economic return. Xiong’an has been called a “bureaucratic utopia” and is already being derided as another potential ghost city, as many assigned government workers are reluctant to move there.

All of this building propped up GDP growth in the short term. Construction activity directly adds to GDP, and so does the production of steel, cement, glass, and other inputs consumed by these projects. Local governments also earn revenue by selling land to developers (often effectively to themselves via local financing vehicles), which then funds more projects – a classic Ponzi-like feedback loop. But the long-term payoffs of this investment binge have diminished. A highway or railway line generates growth when built, but if it’s underutilized, it doesn’t contribute much thereafter, and its debt lingers. Many of China’s infrastructure investments in the 2010s had low marginal returns; some economists estimate China’s Incremental Capital-Output Ratio (ICOR) doubled compared to the early 2000s (i.e., twice as much investment needed to produce one unit of growth). Local government debt exploded as a result, mostly hidden off-budget in financing platforms. By 2021, local governments had an estimated 50 trillion yuan ($7+ trillion) in off-balance sheet debt, a burden now causing severe fiscal stress at the local level (IMF 2023). The push for GDP at all costs left a legacy of ghost assets and very real liabilities.

Nowhere is this more evident than in housing. For years, Chinese home prices seemed only to go up, fueling speculative fervor. Housing became the primary investment for households (accounting for nearly 78% of household assets in China, versus about 35% in the U.S.). This made the economy’s perceived wealth heavily tied to real estate values. Local governments depended on land sales for roughly a third of their revenues, so they had a strong motive to keep land prices high and developers building. This worked until it didn’t. By 2020–2021, giants like Evergrande and a slew of other developers had amassed crippling debts by overleveraging to build more and more projects. When the government belatedly tightened credit conditions with its “three red lines” policy to curb developer debt, the bubble burst. Evergrande defaulted, housing sales plummeted, and construction halted on many pre-sold projects, sparking protests by homebuyers. A property downturn of this scale – unprecedented in China’s modern history – hit in 2022 and continues now. New housing starts fell and property investment declined by double digits in 2022–2023. This has directly dragged down GDP growth; indeed, collapsing real estate was a major reason China’s official growth slowed to 3% in 2022. Analysts at Rhodium Group estimate that without adjustments, China’s GDP shrank slightly in 2022 once one strips out likely overstatement – a far cry from the official 3% expansion.

This is the classic investment trap. The prudent path is to accept lower growth, let the property bubble deflate, and try to pivot the economy toward consumption and productivity-led gains. But local governments and many businesses face insolvency in that scenario, and the social fallout (unemployment, lost savings in housing) is risky for CCP stability. The other path is to reflate – pump credit again into infrastructure, effectively “extend and pretend.” Indeed, each time growth has faltered (2015, 2019, 2020, 2022), authorities have responded with some combination of rate cuts, bond-funded infrastructure pushes, and looser credit to prevent a hard landing. That tends to prop up growth temporarily – and conveniently, official GDP then hits the target zone – but at the cost of more debt and less efficiency. It’s a cliché, but apt: China has repeatedly “kicked the can down the road.” Now, with youth unemployment skyrocketing and public frustration rising, the temptation to stimulate is strong. Yet in 2023, despite a post-COVID reopening, China’s recovery was so weak that by mid-year the government stopped publishing the youth jobless rate and had to cut interest rates to spur activity amid deflation fears.

Youth unemployment deserves special mention as a structural red flag. In urban areas, the unemployment rate for 16–24 year-olds hit 21.3% in June 2023 – the highest since record-keeping began. In reality, if one includes rural youth and those who dropped out of the labor force, some estimates put the jobless rate for young people closer to 40% (Atlantic Council 2023). This is not only a cyclical issue from COVID but also symptomatic of a skills mismatch and the plateauing of China’s old growth model. The economy has been very good at churning out construction jobs and low-end manufacturing jobs in boom times. But as construction slows and manufacturing automates or relocates (or faces weak exports), China has to find white-collar and service jobs for millions of college graduates it produces each year. That transition isn’t happening fast enough. The tech sector – a big absorber of skilled youth – was hit by regulatory crackdowns in 2021, freezing hiring. Many graduates end up “lying flat” (a buzzword for doing nothing) or taking much lower-paying gigs. High youth unemployment in a still-growing economy is a harbinger of deeper structural adjustments needed. It undermines the narrative that China’s rise will continue unabated, and it certainly pokes holes in any official triumphalism about growth numbers.

Finally, the demographic time bomb has started ticking. China’s population, long expected to peak around 2030, in fact peaked and began shrinking by 2022 – almost a decade earlier than many forecasts. The year 2022 saw the first absolute decline in population since the great famine of 1959–61, and 2023’s drop was even larger at over 2 million people. The birth rate has fallen to record lows (around 1.1 children per woman, far below the replacement rate). Meanwhile, due to better health, people are living longer, so the share of the elderly is rising. China is effectively aging before it fully prospers – a phenomenon often called “growing old before growing rich.” A shrinking, aging population is like a slow puncture in the economic tire: labor force growth turns negative, domestic market expansion slows, and the burdens of pensions and healthcare soar. Japan, South Korea, and others have faced similar trajectories, typically accompanied by a significant downshift in GDP growth to low single digits or less. For China, which has relied on an expanding pool of young workers and migrants for decades, this is a profound change. Labor shortages are already appearing in factory zones, while the glut of graduates unemployed shows the challenge is qualitative – creating the right jobs – not just quantitative.

Demographics also tie back to data reliability in an interesting way. There has long been skepticism about China’s population data (just as with GDP). After the 2020 census, some demographers believed China’s population had actually peaked around 2018, but the official line was growth until 2022. Whether or not there was a minor delay in reporting the peak, it’s clear that the demographic headwind is real and strong. Any economic model that assumed China could grow at 6%+ for another decade on the back of abundant labor and urbanization must be revised. Instead, China now faces the prospect of zero percent labor force growth, meaning any GDP growth must come purely from productivity gains or capital deepening – both of which are harder to achieve when debt is high and innovation is plateauing.

Slowing Toward the “New Normal”

All these factors – the debt overhang, the busted property boom, the aging population, and productivity strains – point to one conclusion: China’s economy is experiencing a long-term structural slowdown. The double-digit growth of the early 2000s is gone, and even the 6–7% of the 2010s may be a thing of the past. Xi Jinping himself acknowledged this by pushing the narrative of “high-quality development” over high-speed growth. The official target for GDP growth in 2023 was set at a modest approximately 5%, the lowest in decades (aside from the pandemic hiccup). But the credibility of even that number is in doubt – as we’ve explored, researchers at Rhodium Group, for example, think China’s true growth in 2023 was perhaps only 1.5–2%, once one accounts for flatlining investment and statistical quirks. Logan Wright of Rhodium bluntly stated that 2023’s GDP data “significantly overstated” growth, given that fixed investment was basically stagnant while consumption, though improved, couldn’t single-handedly lift the economy that much. Their models (and others at the World Economics index) suggest China may even struggle to average 3–4% growth in the mid-2020s. Beijing’s own projections now tacitly accept that something like 3–4% might be the “new normal” annual growth rate barring major reforms.

The implications of an overstated past and slowing future are significant. For one, if China’s actual economy is smaller and slower than advertised, global prospects that banked on China as an ever-booming market need adjustment. Multinational firms, commodity exporters, and neighboring countries have long relied on China’s growth locomotive. An overestimation means they might have over-invested expecting too much demand. We have already seen surprises like China’s much weaker-than-expected import growth in 2022–23, which hurt exporters worldwide. Additionally, if China’s local governments have been padding numbers, it means their fiscal situations might be even worse than known – many localities could have lower revenue bases and higher debt ratios relative to their true GDP. This raises the risk of local defaults or the need for central bailouts (a process somewhat underway via special bond issuances to refinance local debts).

Domestically, the Chinese people are increasingly aware of the disconnect between rosy GDP headlines and their own experiences. When official data trumpet an approximate 5% growth and a “better than expected” recovery, but youth can’t find jobs, small businesses close, and prices for goods are falling (China experienced mild deflation in mid-2023), it breeds cynicism. The CCP’s bargain of prosperity for acquiescence can fray if citizens start doubting the prosperity part. Trust in statistics is a component of trust in government. This perhaps explains why, despite evidence of overstatement, the government is cautious not to make abrupt revisions or admit past exaggerations – it could undermine credibility. Yet, continuing to insist everything is fine carries its own peril. It may lead to policy missteps: for instance, underestimating the need for stimulus or social support because official data look okay, or conversely, wasting stimulus in the wrong places to hit arbitrary targets.

Even at the highest levels, some honesty is seeping in. In 2020, President Xi said in a Politburo meeting, “we must not only keep the economy growing but more importantly ensure people’s livelihoods and prevent risks… we’d rather the GDP growth rate be a bit lower, as long as employment is stable.” This was interpreted as a signal that hitting a number like 6% was no longer sacrosanct if it meant dangerous leverage or inequality. And indeed, China refrained from setting a hard GDP target in 2020 due to COVID turmoil – a rare move. It returned to targets afterward (5.5% for 2022, which it missed, and approximately 5% for 2023), but the symbolism of that omission was telling.

In conclusion, the evidence is overwhelming that China’s GDP figures need to be taken with a grain of salt. From Li Keqiang’s frank dismissal of them as “for reference only” to the sophisticated satellite-based studies of Martínez and others, we see a consistent pattern of embellishment. This pattern arises from deep political incentives and has been facilitated by an investment-heavy model that allowed local officials to “create” growth (and statistics) through borrowing and building. But those days are ending. China can no longer simply build its way to prosperity; the costs are too high and the returns too low. The coming era will likely be one of much slower growth – perhaps on the order of what China’s true growth has already been in recent years once the fluff is removed.

There is a Chinese proverb: “纸包不住火” (paper cannot wrap up a fire). In the same vein, statistical paper cannot forever wrap up the underlying economic reality. Eventually, the truth finds its way out, whether through market signals, public discontent, or internal reckoning.

As Premier Li Keqiang once advised his colleagues, better to look at the lights, rails, and loans – the things that don’t lie so easily. The lights in China are still shining, but perhaps not as brightly as the GDP numbers would have us believe. A mature, sustainable Chinese economy may well grow slower – and that’s okay. What’s not okay is if policy and perception remain chained to an illusion of high growth. Recognizing the exaggeration is the first step to adapting to the new normal. In the end, facing reality – however uncomfortable – will put China on a firmer footing than any glossy statistic ever could.