RadioWhoWhatWhy: The Chinese Emperor Has No Clothes: The Truth About the Chinese Economy

The Dow Jones plummeted Thursday over concerns that President Donald Trump is plunging the US in a trade war with China. Such a conflict is widely expected to harm US consumers. But what about the Asian superpower?

What if the Chinese Emperor has no clothes? Remember back in the 1970s when Americans were afraid of the Japanese economy taking over? When they bought great American assets and real estate? In fact, all that fear and anxiety were misplaced. The same may be true today with respect to China.

We hear breathtaking economic numbers coming out of Beijing. The consistent low unemployment rate and high GDP are often the envy of the world. But are those numbers real? And if not, does the Chinese government even know what the real numbers are?

In this week’s WhoWhatWhy podcast, Jeff Schechtman talks to Wall Street Journal and Dow Jones News Service journalist Dinny McMahon, who has spent more than a decade inside China, and who understands much about the mythology and challenges of the Chinese economy.

Many of these economic statistics from China are manufactured from the bottom up, as city and regional leaders puff up the numbers they send to Beijing to make themselves look good. All of this, according to McMahon creates an artificial impression of growth.

It’s the Chinese version of fake news.

These statistics encourage more borrowing by state-owned companies and local governments to build more factories, housing and public works, much of which are not needed. The overcapacity creates so-called investments that may never pay off.

McMahon also explains how China's continued emphasis on infrastructure and heavy industry could be a disaster. And that China has to make the turn to a more consumer- driven economy if it is to join the modern world economy.

Its once endless supply of cheap labor is drying up, the move from rural areas to the cities has slowed, the population is aging, manufacturing costs are increasing and it’s very possible that China might grow old, before it grows rich. If that happens, McMahon explains, the repercussions for the world economy could be substantial.

 Dinny McMahon is the author of China’s Great Wall of Debt: Shadow Banks, Ghost Cities, Massive Loans, and the End of the Chinese Miracle (Little, Brown Book Group, March 13, 2018).