Officially, China’s economy grew by 5% last year, according to the country’s National Bureau of Statistics. Some independent estimates, like those of Goldman Sachs and Citigroup, match China’s official figure. Other estimates are significantly lower, like the 2.8% GDP growth calculated by the Rhodium Group, a China-focused research firm. 

Statistical measures can change or disappear without explanation. In 2023, after a surge in youth unemployment to a high of 21.3%, China’s statistics bureau abruptly stopped publishing the data, citing a need to tweak the measurement. A few months later, the number returned, several percentage points lower after excluding students from the measurement. (Youth unemployment stayed high, despite the change: Just under 18% of 16 to 24-year-olds were unemployed in July.)

Then there’s pressure to follow the official narrative on the economy. During the depths of China’s recent economic slowdown, economists and analysts reportedly faced pressure to tone down their negative analysis. “The party is really intolerant of economic instability, and so everything gets smoothed,” Derek Scissors, a senior fellow at the American Enterprise Institute, says. 

But why is China’s economic data collection so problematic? What do economists and investors use instead? 

China’s data struggles

Collecting economic data is really hard, particularly for a large and emerging economy like China. “The quality and breadth of U.S. economic statistics is simply on another planet compared to China’s data,” laments Christopher Beddor, deputy China research director at Gavekal. “It’s striking how little progress there has been in some areas over the past 20 years,” particularly in areas like measuring services and household consumption. 

China’s data collection also doesn’t match how other countries measure economic data, in part due to its history as a centrally planned economy. Scissors, who is also the chief economist of research firm China Beige Book, suggests that many transactions within state-owned companies, such as between parents and subsidiaries, are done on a “non-market” basis. 

“In terms of the surveys, sometimes they refuse to ask the right questions. They don’t have an unemployment survey that asks about unemployment,” he adds. 

Dan Wang, China director for the Eurasia Group, points out that there are incentives to manipulate the data that goes into national surveys. “Businesses underreport to avoid taxes, local officials overreport to get promotions,” she notes. “This problem has been aggravated in this economic downturn.”

Top officials recognize that there’s a problem. Late last year, China approved legislation that would hold local governments accountable for statistical fraud. 

So how do investors make decisions?

China’s unreliable numbers have created a “cottage industry of alternative measures of GDP growth for investors,” says Beddor, from Gavekal. “But none have really earned an industry consensus as superior or truly reliable.”

In 2010, The Economist formulated what it called the “Li Keqiang index,” named after China’s former premier, which tracked railway cargo volume, electricity consumption, and bank loans. The index was based on a leaked U.S. State Department memo which claimed the premier—then a provincial government official—used those indicators as a better way to track China’s economy than more unreliable official data, particularly at the provincial level. 

“I used to rely on electricity,” says Alicia Garcia-Herrero, the chief Asia-Pacific economist at investment bank Natixis, though she adds that there’s now more data available. Analysts now look to data points like sales of consumer durables or the popularity of luxury goods to measure things like consumption. 

For Beddor, the answer is to “look at as many data series as you can and try to form a narrative of what’s happening in the economy.” 

Some data points can be cross-checked with other sources, including those outside of China, when it comes to trade statistics. And China’s private sector can also be a source of insights into how the economy is doing, even if those conclusions don’t come with a hard number. “If you talk to many businesses, you get a very good sense of what’s going on,” says Garcia-Herrero.

Unreliable data can also be valuable as a signal of what Beijing is thinking, Wang says. “Even if governments overreport GDP growth, markets will take it as anticipating policy support to reach the target,” she explains. 

“Making decisions on China is about policy signals. It’s not a market-driven economy. State decisions on policies are the most important thing to follow,” Wang says.

What about the U.S.?

If U.S. economic data starts to look a little more unreliable, that’s likely to make businesses more unwilling to make large spending decisions. “When you’re facing that kind of uncertainty, it’s harder to make major economic decisions,” Scissors, of AEI, says. Companies may hold back on committing to new investments if they’re not confident that “conditions are ripe,” he warns. “You will get less economic activity.”

That’s certainly been the case in China. Both domestic and foreign businesses held back on investing in China due to concerns that the country’s economy was worse than official numbers suggested, with some analysts even calling the country “uninvestable.” 

Beijing’s promise to stimulate the economy and a DeepSeek-fuelled AI boom have reversed sentiment this year—and Chinese market indices like the Hang Seng Index have outperformed the S&P 500.

But the country’s economy is still struggling. Retail sales in July rose by 3.7%, below consensus expectations. Industrial production also rose at its slowest rate—5.7%—since last November. “We expect added policy support to lift domestic demand to be rolled out soon and faster implementation of announced policies will also be needed to help stabilize the growth in H2,” HSBC economists wrote earlier this week.