Excess Savings are Driving a New China Shock: The History, the Data, & What It Means for Singapore Insurance

Dr. David H. Autor and his co-authors documented the original China Shock.  Their research found China’s entry into world trade cost the United States close to 2 million jobs.  Entire manufacturing towns lost their economic base.  The shock covered low-cost clothing, footwear, consumer electronics, furniture, and household appliances.  It began in the mid-1990s and intensified after China joined the World Trade Organisation in 2001.  A boom in Chinese infrastructure and housing construction after 2008 absorbed much of the domestic surplus.  Imports of equipment and raw materials rose.  Outbound tourism helped offset the trade surplus too.  By the end of the 2000s, the first shock had run its course.

The new shock is not about cheap labour anymore.  It covers high-end manufacturing: solar panels, wind turbines, heavy equipment, electric vehicles, batteries, robots, and speciality chemicals.  COVID-19 halted tourism outflows that had previously offset the trade surplus.  The 2022 collapse of China’s property bubble then gutted domestic demand at exactly the wrong moment.  Chinese firms responded by chasing overseas markets harder.  Exports rose.  Imports fell.  China’s trade surplus surged past US$1 trillion, close to 1% of global GDP.  Manufacturing PMI entered contraction territory for the first time in five months as of the latest reading.  South Korea, Germany, and Japan have all reported direct pressure on their steel, automotive, and machinery sectors from underpriced Chinese competition.

Does the Excess Savings Argument Hold Water?

Michael Pettis, Senior Fellow at the Carnegie Endowment, has argued this for years, alongside co-author Matthew C. Klein in their book Trade Wars are Class Wars.  His case: China suppresses domestic consumption to subsidise manufacturing, and the rest of the world absorbs the resulting surplus through deficits.  He notes China’s manufacturing competitiveness rests on an undervalued exchange rate, cheap financing, and low wages relative to productivity, not manufacturing efficiency alone.  Value-added tax generates close to 40% of China’s total tax revenue.  Local governments split that revenue with Beijing, giving officials a direct financial stake in keeping factories running regardless of whether those factories turn a genuine profit.  One industry founder, speaking anonymously, put it bluntly: officials fear missing GDP targets, not overcapacity, because a factory generates VAT revenue whether it sells its output profitably.

This is not an uncontested reading.  China’s own Ministry of Commerce published a 10,000-character rebuttal on 28^th July 2026, arguing that large exports and trade surpluses alone cannot prove overcapacity exists.  Chinese state media has compared the entire “China Shock 2.0” framing to the Japan-bashing of the 1980s, arguing it reflects Western anxiety over a genuine efficiency gap rather than an accurate description of unfair Chinese practice.  Both positions rest on real data.  What is not contested is the debt underneath it.  China’s official government debt stood at 60.9% of GDP in 2024, according to the IMF.  Once off-balance-sheet local-government financing vehicle debt is included, that figure reaches 117% of GDP.  A country running that expanded debt load, while VAT incentives keep unprofitable factories operating, has structurally little room to absorb a genuine domestic demand recovery even if it wanted one.

How This Affects China’s Own Growth

Weak domestic demand and a manufacturing sector back in contraction do not describe an economy accelerating.  They describe one relying on exports to paper over a domestic hole that housing collapse and post-pandemic caution both opened.  Deflationary pressure at home compounds the problem, since firms cutting prices to move overseas surplus also compress margins domestically, feeding directly into weaker corporate profitability and, eventually, weaker local government finances that already carry the expanded 117% debt burden.

Near-term, I expect continued trade friction with the United States, the European Union, South Korea, Japan, and Germany, each already documenting direct industrial pressure.  Expect Beijing to keep resisting large-scale capacity cuts, since local governments have every fiscal incentive to keep factories running under the current VAT-sharing structure.  Expect the domestic property slump and weak consumption to persist without a substantial policy shift toward household stimulus rather than manufacturing stimulus, and expect that shift to remain politically difficult given the social stability concerns large-scale factory layoffs would trigger.

What This Means for HNW Life Insurance Out of Singapore

A domestic economy running structurally weak consumption, a contracting manufacturing PMI, and expanded local government debt at 117% of GDP is not an environment wealthy Chinese families want their liquid capital fully exposed to.  Add the 20% offshore trust tax that took effect on 24^th July 2026, and the incentive to diversify family wealth outside mainland structures compounds directly on top of the trade-driven uncertainty.

The proposition is straightforward.  A Singapore-domiciled life insurance policy, held directly rather than inside a trust, sidesteps the trust levy entirely while offering genuine currency diversification away from a renminbi economy running a trade-surplus-dependent growth model.  For exporters themselves, the same families whose businesses are generating the excess savings driving this entire dynamic, a jumbo policy converts export-driven corporate and personal cash surplus into a stable, tax-efficient, professionally managed asset outside the exact economic cycle generating that cash in the first place.

The options worth structuring around this moment: a directly held policy for families prioritising speed and simplicity ahead of China’s October declaration deadline; a policy layered with a Death Benefit Bequest Option for families wanting staged, multi-year payouts to the next generation rather than a lump sum exposed to the same generational wealth dissipation risk documented across every major wealth transfer study; and, for exporters sitting on genuine excess corporate cash, a premium financing structure that converts a portion of that surplus into policy funding without fully repatriating capital that would otherwise sit exposed to the same domestic slowdown driving the entire China Shock 2.0 story in the first place.

---

Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

 

Quora Answer: How Can China Have a Total Debt of 300% of Its GDP, Yet Still Maintain Strong Foreign Reserves & Economic Stability?

The following is my answer to a Quora question: “How can China have a total debt of 300% of its GDP yet still maintain strong foreign reserves and economic stability?”

China’s macro leverage ratio, combined household, corporate, and government debt, crossed 302.3% of GDP in 2025, according to the National Institution for Finance and Development.  Western financial media greeted this as an impending catastrophe.  What that coverage consistently omits is the single fact that actually determines whether a debt ratio is dangerous: who holds the debt, and in what currency.

The overwhelming majority of China’s debt is owed by Chinese entities to Chinese lenders, denominated in yuan, financed through a state-controlled banking system that answers to Beijing rather than to foreign bondholders demanding repayment on foreign terms.  This is structurally identical to the reason Japan has run a government debt-to-GDP ratio above 235% for years without triggering a sovereign default: when a government owes money to its own citizens and its own banks, in its own currency, that government retains policy tools no externally indebted country possesses.  It can restructure, roll over, or direct its own state banks to extend terms, because the creditor and the debtor ultimately answer to the same authority.  Compare that to a country such as Argentina, whose repeated defaults stemmed specifically from dollar-denominated debt owed to foreign creditors who could not be instructed to simply wait.  China’s debt problem is a domestic balance-sheet management exercise.  It is not a solvency crisis waiting for a foreign creditor to call the loan.

The Two-Track Currency System the Critics Never Explain

China operates two distinct renminbi markets.  The onshore yuan, CNY, trades within mainland China under strict People’s Bank of China control, subject to capital restrictions and a managed daily trading band.  The offshore renminbi, CNH, trades freely in Hong Kong, Singapore, and London, driven by genuine market supply and demand rather than central bank fiat.  This dual-track structure lets Beijing manage domestic monetary conditions with one hand while gradually internationalising the currency with the other, without exposing the entire domestic financial system to the kind of speculative attack that crippled Thailand’s baht in 1997.  China’s own central bank has actively defended this architecture: in January 2016, the PBOC directed state banks to buy offshore renminbi in Hong Kong to punish hedge funds shorting the currency, driving CNH overnight interbank rates above 60% overnight.  A country running a “reckless” 300% debt ratio does not casually inflict that kind of pain on foreign speculators betting against it.

Why China Bought US Treasuries, and Why That Era is Ending

China accumulated US Treasury holdings for decades as the natural counterpart of its trade surplus, absorbing dollars earned from exports and parking them in the deepest, most liquid sovereign bond market on the planet.  That relationship is now unwinding deliberately.  China’s Treasury holdings fell to US$652.3 billion by March 2026, the lowest level since September 2008, part of a broader diversification rather than a panic-driven exit.  China’s foreign exchange reserves, by contrast, sit at roughly US$3.4 trillion as of February 2026, the highest level since November 2015, with seven consecutive months of growth, and the People’s Bank of China simultaneously extending a sixteen-month streak of gold purchases, pushing its gold reserves to US$387.6 billion.  This is not a country running out of firepower.  It is a country deliberately reducing concentration in a single foreign asset class after watching Washington freeze roughly US$300 billion of Russia’s reserves in February 2022, a lesson every non-aligned central bank on the planet absorbed simultaneously.  China needed Treasuries when it had nowhere else liquid enough to park its surplus.  It no longer needs them exclusively, and diversifying away from a jurisdiction that has demonstrated it will weaponise reserve access is not recklessness.  It is the single most rational response available to it.

The Property Market Conundrum

China Evergrande Group, once the country’s largest property developer by sales, defaulted in 2021, carrying over US$300 billion in total liabilities, and was ordered into liquidation by a Hong Kong court in January 2024.  Country Garden followed a similar trajectory.  Chinese household debt has grown alongside this property downturn, with nonperforming household debt rising 21% in 2025 to at least 2.2 trillion yuan, roughly US$325 billion, and an estimated 10.6% of China’s 1.1 billion adults behind on debt payments by the end of that year.  This is real distress, concentrated specifically in a property sector that absorbed a disproportionate share of Chinese household savings for two decades, because Chinese households, facing capital controls and an underdeveloped domestic capital market, had few genuine alternatives to real estate as a savings vehicle.

A household savings rate running well above 30% of income, channelled overwhelmingly into property because domestic equity markets remain shallow, volatile, and dominated by speculative retail flows rather than institutional depth, was always going to produce the concentration risk now unwinding.  The fix is deeper capital markets, broader investment alternatives, and continued diversification of both household savings and sovereign reserves away from a single asset class, whether that asset class is domestic property or foreign Treasuries.  China is already doing the second half of that homework, evidenced by the gold accumulation and the reserve diversification above.  The first half, giving its own households a genuine alternative to real estate speculation, remains unfinished, and that is a legitimate criticism.  It is simply a different criticism than “China’s debt ratio will trigger a Western-style sovereign crisis,” which confuses a structural, self-financed, self-currency debt overhang with the externally financed defaults that actually define sovereign crises elsewhere.

Western commentary treats America’s own debt trajectory, US$38.3 trillion in absolute terms, with a debt-to-GDP ratio Moody’s has already flagged as heading toward 134% by 2035, as a manageable, sophisticated market phenomenon, while treating China’s higher ratio as evidence of impending collapse.  The difference is not the arithmetic.  It is who is doing the counting, and which country the counters happen to live in.

---

Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Quora Answer: What Does China, Japan, Et Al Dumping US Treasury Bonds s Say about the Future of the US Currency & Economic Outlook?

The following is my answer to a Quora question: “China, Japan, et al. have recently been dumping a lot of US Treasury bonds.  What does this say about the future of the US currency and economic outlook?”

Foreign central banks sold US$138.4 billion in Treasuries in March 2026 alone.  Japan led the exit at US$47.7 billion; China followed at US$41 billion, with Luxembourg, Taiwan, Saudi Arabia, India, Canada, and the United Arab Emirates all selling too.  China’s holdings fell to US$652.3 billion, the lowest level since September 2008, an eighteen-year low.  Overall foreign holdings dropped from US$9.49 trillion in February to US$9.25 trillion in March.  Read the headlines, and this looks like the opening chapter of dollar collapse.  When we read the actual mechanism behind the numbers, the story is more mundane, considerably more revealing, and a great deal less flattering to the people currently shouting about it on financial television.

Why They Sold, & It was Not Ideology

This was not strategic de-dollarisation.  It was currency intervention, forced on central banks by the outbreak of the US-Iran conflict.  Crude oil prices surged as the war broke out, and the yen and other Asian currencies tumbled in response.  The Bank of Japan intervened in currency markets in late March and early April 2026, after the yen weakened past the politically sensitive 160 level against the dollar, a threshold Tokyo has treated as a red line since the currency last breached it in 2024.  Surging oil import costs widened Japan’s current account at exactly the wrong moment, and Japan, as one of the most energy-import-dependent economies among the major powers, had no realistic alternative but to sell dollar assets to fund yen support.  Frederic Neumann, chief Asia economist at HSBC, summarised the mechanism without ambiguity: exchange market intervention to support local currencies forced central banks to sell part of their dollar-denominated holdings.  That is defence, not defiance.

A Pattern with Precedent

This is not the first time global central banks have been forced into exactly this position, and the historical parallel is instructive.  During the 1997 Asian Financial Crisis, Thailand’s central bank spent down its foreign reserves defending the baht’s peg to the dollar before finally floating the currency on 2 July 1997, triggering a regional contagion that swept through Indonesia, South Korea, and Malaysia within months.  Central banks across the region learned then, at enormous cost, that defending a currency against a genuine shock requires burning through dollar reserves, not hoarding them for symbolic effect.  The 2013 “Taper Tantrum,” triggered when then Federal Reserve Chair Ben Shalom Bernanke merely signalled the possibility of reducing asset purchases, produced a similar scramble across emerging markets as capital fled and currencies buckled.  March 2026 is simply the latest entry in a well-established pattern: an external shock hits, a currency wobbles, and the central bank sells dollar assets to stabilise it.  Nobody called Thailand’s 1997 reserve drawdown “de-baht-isation.”  Calling March 2026’s intervention “de-dollarisation” applies the same logical error, dressed up for a modern audience.

The Bond Market Felt the Pain Regardless

None of this was painless for holders of Treasuries generally.  Treasuries came under significant pressure as the Middle East conflict stoked inflation fears, forcing investors to demand higher compensation for holding US government debt.  Foreign investors logged a US$142.1 billion valuation loss on long-term Treasury holdings in March alone, on top of the outright selling.  Yields climbing under geopolitical stress is a genuine market event.  It is simply not the same event as strategic abandonment of the dollar as a reserve asset, and conflating the two produces bad analysis and, for anyone trading on the panic, potentially expensive decisions.

The Number That Matters, & Nobody is Reporting It

Here is the detail that undercuts the entire panic narrative, and it rarely makes it past the headline.  Total foreign holdings of Treasuries rose from US$7.7 trillion in December 2021 to approximately US$9.2 trillion in December 2025, an increase of US$1.5 trillion over four years, encompassing multiple periods of supposed “de-dollarisation” panic along the way.  In March 2026 itself, the very month everyone is citing as evidence of flight from the dollar, net foreign private inflows into long-term US securities reached US$162.1 billion, comfortably outweighing the US$14.9 billion in net official-sector selling.  The overall net TIC inflow for the month, combining long-term securities, short-term instruments, and banking flows, came to a positive US$150.7 billion.  Central banks retreated for a month under duress from an oil shock.  Private capital, the money with no political intervention mandate attached to it, kept buying anyway, in considerably larger size.

The Expert Who Actually Checked the Data

Brad Setser, a senior fellow at the Council on Foreign Relations and one of the most rigorous trackers of Chinese reserve behaviour, has directly challenged the popular assumption that China is engaged in deliberate, strategic dollar diversification.  He notes that China has not disclosed the currency composition of its reserves since 2020, which makes confident claims about its intentions inherently speculative.  What evidence does exist suggests China’s currency composition has not shifted dramatically, partly because the dollar’s share of its reserves was already structurally low, around 55%, and further underweighting the dollar means sacrificing yield for no clear strategic gain.  He is similarly sceptical that the 2022 freezing of Russian reserves triggered a wholesale Chinese reserve rebalancing, noting the increased bid for gold from the People’s Bank of China has been, by China’s own disclosed data, marginal rather than transformative.  Setser’s broader point deserves repeating: official Treasury data structurally undercounts China’s actual footprint in US debt markets, because a considerable share of Chinese dollar exposure sits inside custodial accounts, swaps, and funding arrangements that never appear cleanly labelled “China” in the published figures.  The headline number understates China’s real exposure, even as commentators use that same understated figure to declare that China is fleeing the asset class entirely.

Where the Genuine De-Dollarisation Story Sits

The real structural story is slower, considerably less photogenic, and impossible to compress into a single dramatic month.  The dollar’s share of global reserves has fallen from a peak above 70% in 2000 and 2001 to 56.77% by the fourth quarter of 2025, according to IMF Currency Composition of Official Foreign Exchange Reserves data.  Central bank gold purchases have exceeded 1,000 tonnes annually since 2022, more than double the 400 to 500-tonne pre-2022 norm, according to World Gold Council figures. The reason traces back to a single, well-documented event.  In February 2022, the United States, coordinating with the European Union, United Kingdom, Canada, and Japan, froze approximately US$300 billion of Russia’s central bank reserves in response to the invasion of Ukraine.  Every non-aligned central bank on the planet absorbed the identical lesson simultaneously: dollar and euro reserves held inside someone else’s financial system can be rendered inaccessible by a political decision, with no court proceeding and no warning.  That is genuine, durable de-dollarisation, driven by a documented act of financial statecraft rather than a currency intervention triggered by an oil shock.  It has been building quietly for four years.  It has nothing to do with what Japan and China did to their Treasury holdings in March 2026.

The Verdict

Conflating a single, crisis-driven month of central bank selling with a structural loss of dollar privilege is lazy analysis dressed up as geopolitical insight.  The dollar’s genuine vulnerability is not one volatile month of intervention.  It is the decade-long, deliberate diversification into gold and an expanding tail of smaller currencies, driven by the entirely rational fear that Washington will weaponise the dollar system again the next time it decides a foreign government has misbehaved.  China and Japan did not sell Treasuries in March 2026 because they have lost faith in America.  They sold because an oil shock hit their currencies, leaving them no alternative, just as Thailand had none in 1997.  Private capital, watching the same events with none of the political obligation to intervene, bought the dip regardless.  If dollar privilege is ending, it will not end with a headline this dramatic.  It will end the way Setser’s own data suggests it is actually happening: quietly, gradually, and largely off the page that everyone else is reading.

---

Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Quora Answer: How Strongly Competitive is the Singapore Dollar against the Chinese Yuan?

The following is my answer to a Quora question: “How strongly competitive is the Singapore dollar against the Chinese yuan?”

The question assumes these two currencies compete in the same arena.  They do not.  One is a fully convertible currency belonging to a city-state with no domestic market of consequence, managed explicitly against a trade-weighted basket.  The other belongs to the second-largest economy on the planet, and remains only partially convertible by deliberate government design.  Comparing their competitiveness without acknowledging that distinction is like asking whether a scalpel is more competitive than a bulldozer.  Wrong comparison, and the answer changes entirely depending on what you are actually trying to cut.

The Spot Numbers, Since Data Should Always Come before Opinion

As of July 2026, one Singapore dollar buys roughly 5.24 to 5.29 Chinese yuan.  Over the preceding twelve months, the SGD weakened by around 5% against the yuan, yet remains approximately 9.7% stronger than it was five years earlier.  Most forecasters expect the pair to hold broadly within a 5.20 to 5.45 band through the remainder of 2026, rather than moving decisively in either direction.  That is a currency behaving exactly as designed: stable, unexciting, and entirely uninterested in providing headlines.

The Monetary Authority of Singapore does not primarily set an overnight interbank rate, something almost no other central bank does.  It manages the Singapore dollar’s trade-weighted nominal effective exchange rate, the S$NEER, against an undisclosed basket dominated by the US dollar, the Chinese yuan, the euro, the Malaysian ringgit, and the Japanese yen, allowing it to appreciate or depreciate within a defined policy band.  After five consecutive tightening steps between October 2021 and October 2022, MAS began easing that band from 2024 onward, and by early 2026 core inflation had normalised to roughly 1.5% year-on-year, comfortably within its 1% to 3% target range.  This is a central bank running its currency the way a Swiss watchmaker runs a movement.  Small, precise, and engineered to keep working regardless of what is happening outside the case.

The renminbi climbed to the fifth most used global payment currency by 2023, up from thirty-fifth in 2010, according to SWIFT data, and China’s Cross-Border Interbank Payment System reported 194 direct participants and 1,597 indirect participants as at 24^th June 2026, clearing roughly RMB 180 trillion in transactions over 2025 alone.  That is a serious piece of financial infrastructure, built with serious intent.  It has not translated into a currency that competes with the Singapore dollar on the metric that actually matters for wealth structuring: reliable convertibility.  The renminbi’s share of global payments through SWIFT peaked at 4.74% in mid-2024 and has since fallen back to somewhere between 2.75% and 3.1% in early 2026.  Its share of global allocated foreign exchange reserves sat at just 1.95% in the fourth quarter of 2025, against the US dollar’s 56.77%.  The Federal Reserve’s own research places the renminbi’s aggregate international usage at roughly 2.5%, lagging not just the dollar but the euro, sterling, and the yen as well.  The reason is structural, not incidental.  The renminbi is not fully convertible on the capital account, and Beijing has shown no serious intention of changing that, because full convertibility would mean surrendering exactly the capital controls that let the People’s Bank of China manage its exchange rate and domestic monetary conditions on its own terms.

On 11^th August 2015, the People’s Bank of China devalued the yuan by roughly 2% in a single day, the largest one-day move in two decades, in what it described as a shift toward a more market-determined exchange rate.  The move triggered a wave of panic through Asian markets, accelerated capital flight out of China through informal and formal channels alike, and sent investors scrambling for currencies perceived as stable stores of value.  Singapore, with its fully convertible currency and MAS’s exchange-rate-anchored policy framework, was one of the principal beneficiaries of that flight, absorbing capital that no longer trusted a currency subject to sudden, centrally announced repricing.  That is not a currency competing on strength.  That is a currency competing on trust, and trust does not respond well to a central bank that can devalue you by government decree on a Tuesday morning.

How Strongly Competitive is the Singapore Dollar against the Yuan?

On raw economic scale, the comparison is absurd.  On the metric that actually determines where global capital parks itself during genuine stress – full convertibility, policy transparency, and freedom from capital account intervention – the Singapore dollar is not merely competitive.  It is the currency the yuan’s own architects are still, twenty years into the project, trying to build something equivalent to.

---

Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Quora Answer: Does China’s GDP Methodology Understate the True Size of Its Economy?

The following is my answer to a Quora question: “I read a report that stated the way China counted items to include in the GDP calculation severely underestimates its actual GDP.  Is this true?”

 

The short answer is yes.  The longer answer explains why this matters more than the headline GDP figure suggests — and why the conventional Western dismissal of Chinese economic data as unreliable is itself unreliable.

The Structural Underestimation Problem

China’s GDP methodology follows the United Nations System of National Accounts framework — the same framework used by the United States, the European Union, and every other major economy.  The methodology is not the problem.  The implementation contains specific structural features that produce systematic underestimation of Chinese economic output.  The most significant is the treatment of the services sector.

China’s National Bureau of Statistics has historically collected services sector data through enterprise surveys — annual reporting by registered businesses.  This methodology captures the formal, registered portion of the services economy with reasonable accuracy.  It systematically misses the informal and semi-formal services economy — the vast network of small service providers, sole traders, and unregistered businesses that constitute a larger share of Chinese economic activity than equivalent sectors in developed economies.

The McKinsey Global Institute estimated in research published between 2015 and 2021 that China’s informal economy accounts for approximately 17% to 25% of total economic activity — a range that, applied to China’s official 2024 GDP of approximately US$17.9 trillion, implies a true economic size of approximately US$21 trillion to US$22 trillion.  This would place China’s nominal GDP closer to — or potentially exceeding — the United States’ US$29 trillion figure on a revised basis, depending on the methodology applied.

The Housing Imputation Problem

The second major underestimation source is the treatment of owner-occupied housing in GDP calculations.  Standard national accounts methodology includes an imputed rent for owner-occupied housing — an estimate of what homeowners would pay if they rented their own homes.  This imputation ensures that the housing services consumed by owner-occupiers are captured in GDP, even though no money actually changes hands.

China’s NBS has historically applied conservative imputed rent estimates — significantly below market rental rates in major Chinese cities — reflecting official rent control policies and administrative valuations rather than market-clearing prices.  In a country where homeownership rates exceed 70% and where urban property values in tier-one cities have appreciated dramatically over the past two decades, the conservative imputed rent assumption produces a material underestimation of housing services’ contribution to GDP.  Dr. Louis Kuijs — formerly of the World Bank’s China office, now at Oxford Economics — estimated in published research that applying market-rate imputed rents to Chinese owner-occupied housing would add approximately 2 to 3 percentage points to Chinese GDP.  On a US$17.9 trillion base, that is approximately US$360 billion to US$540 billion in additional economic output that does not appear in the official figures.

The Government Services Problem

Government services present a third source of underestimation specific to the Chinese accounting methodology.  In most developed economies, government services are valued at their cost of production in GDP calculations — the salaries of government employees, the cost of government buildings, and the operating expenses of public services all flow into GDP.  China applies this same methodology but with a specific complication: Chinese local government employees across much of the country receive compensation packages that include substantial non-monetary benefits — subsidised housing, healthcare, and pension entitlements — that are difficult to value and are inconsistently included in the cost-of-production measure.  The consequence is that the government services sector’s contribution to Chinese GDP is likely understated relative to the actual value of services provided, because the full compensation of government employees is not fully captured.

The Alternative Measurement Evidence

The most compelling evidence for Chinese GDP understatement comes not from adjusting the official methodology but from alternative proxies for economic activity.  The Li Ke Qiang Index — named after the former Premier of the State Council, Li Ke Qiang, who reportedly told a US diplomat in 2007 that he monitored electricity consumption, rail freight volumes, and bank loan disbursements rather than GDP figures because the latter were “man-made” and therefore unreliable — provides the most cited alternative framework.  The diplomat’s cable, later released by WikiLeaks, recorded Li Ke Qiang’s own scepticism about official GDP figures.  The irony that the man who would later serve as Premier for a decade, having expressed this scepticism, did not result in a comprehensive overhaul of Chinese statistical methodology is not lost on observers.

The Li Ke Qiang Index’s three components — electricity consumption, rail freight, and bank loans — consistently tracked higher than official GDP growth during periods when the official figures appeared to understate activity, and tracked lower during periods when official figures appeared to overstate it.  The index became widely used by international analysts attempting to cross-check official Chinese economic data.  More recently, satellite-based measures of economic activity — specifically nighttime light intensity, which correlates strongly with industrial and commercial activity — have provided independent validation of the underestimation thesis.  Research published in the Journal of Economic Geography and the Review of Economics and Statistics using satellite nighttime light data consistently found that Chinese economic activity, measured through light intensity, exceeded what official GDP figures implied by approximately 10% to 18% during the period from 2000 to 2015.

Research published in the Quarterly Journal of Economics in 2022 by Dr. Luis R. Martinez — now an Assistant Professor at the University of Chicago Harris School of Public Policy — used satellite nighttime light data across 179 countries and found that autocratic governments systematically overstated GDP growth by approximately 35% relative to light-based measures.  China appeared in this analysis as a country where official figures diverged significantly from light-based measures during high-growth periods.  The Martinez finding is nuanced and contested — it does not necessarily mean China’s GDP is overstated in total, but rather that the growth rate in specific periods was reported higher than independent proxies suggest.  The implication could be either that China overstated growth during boom periods — which is the conventional Western critique — or that China understated its economic base during earlier periods, making the subsequent growth rates appear higher than they actually were against a depressed denominator.

The Purchasing Power Parity Dimension

The underestimation question is further complicated by the distinction between nominal GDP and purchasing power parity-adjusted GDP.  China’s official 2024 nominal GDP of approximately US$17.9 trillion is the figure most commonly cited in international comparisons.  The IMF’s PPP-adjusted GDP for China in 2024 was approximately US$35.3 trillion — making China the world’s largest economy by PPP measures, exceeding the United States’ PPP-adjusted GDP of approximately US$29 trillion.

PPP adjustment attempts to correct for price level differences between countries — the fact that a dollar buys considerably more in China than in the United States means that nominal exchange rate comparisons systematically understate the real economic output of lower-price economies.  A Chinese factory worker earning ¥5,000 per month has a lower nominal income than an equivalent American worker — but the purchasing power of that income within China buys considerably more than the nominal figure suggests.

The PPP adjustment does not resolve the methodology debate — it addresses a different source of incomparability — but it establishes that the conventional narrative of China as the world’s second-largest economy is itself potentially misleading.  On the measure that most accurately captures the real volume of goods and services produced, China has been the world’s largest economy since approximately 2014.

The Counterargument: Overstatement in Specific Periods

Intellectual honesty requires acknowledging the counterargument.  The same statistical literature that documents structural underestimation in services, housing, and government sectors also documents periods of apparent overstatement — particularly in provincial-level reporting.  The sum of China’s provincial GDP figures has historically exceeded the national total reported by the NBS — sometimes by margins of 10% or more.  This arithmetic impossibility reflects the incentive structure facing provincial officials, who were historically evaluated and promoted partly based on economic growth performance in their jurisdictions.  The result was systematic upward pressure on provincial reporting that the NBS had to reconcile with more conservative national aggregation.

The NBS recognised this problem and undertook a major statistical revision in 2019, which reduced China’s official GDP by approximately US$800 billion — a downward revision of approximately 2.9% — primarily reflecting corrections to the services sector and provincial reporting inconsistencies.  This revision was unusual in its size and transparency.  It suggests the NBS is aware of and actively working to correct methodological problems.

The Honest Assessment

The evidence supports the contention that China’s GDP is understated on a structural basis — primarily through conservative treatment of informal services, imputed housing rents, and non-monetary government compensation — while also acknowledging that specific periods and specific jurisdictions have seen apparent overstatement driven by political incentives.

The net effect is genuinely uncertain.  The most credible academic estimates suggest that structural underestimation in the services sector and housing imputation alone could account for 5% to 10% of additional GDP that does not appear in official figures.  Whether this is fully offset by any overstatement in other components is a question the available data cannot definitively answer.

What can be said with confidence is that the conventional Western narrative — that Chinese GDP figures are simply fabricated and should be dismissed — is itself too simple.  The NBS applies the same international methodology framework as other major statistical agencies.  Its specific implementation choices produce systematic underestimation in identifiable categories.  The revision of 2019 demonstrates institutional willingness to correct methodological problems when they are identified.

China’s economy is larger than its official GDP figures suggest.  How much larger depends on which adjustments you apply and which independent proxies you trust.  The range of credible estimates places the true figure somewhere between the official US$17.9 trillion and the PPP-adjusted US$35.3 trillion, with the structural adjustments for services, housing, and informal activity suggesting a figure closer to US$20 trillion to US$22 trillion in nominal terms.  That is an economy that is simultaneously the world’s largest by PPP, potentially larger than its nominal GDP suggests, and still growing at rates that no major developed economy can match.  The dismissal of Chinese economic data as uniformly unreliable is a comfortable narrative for those who prefer a simpler world.  The actual picture is considerably more complicated — and the complications mostly point in the direction of a Chinese economy that is larger, not smaller, than the official figures show.

---

Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Quora Answer: Will Southeast Asia & South Asia Benefit or Suffer Should the US Escalate Conflict with China over Taiwan?

The following is my answer to a Quora question: “Will Southeast Asia and South Asia benefit or suffer should the US escalate conflict with China over Taiwan?” 

Any American attack on China will crash the global economy, and no one will benefit.  Why do we have idiots wanting war between the two biggest economies in the world?  China is the global factory and the United States is the global bank.  Any war between these two is a very bad idea for the rest of us.

Quora Answer: What are the Differences & Similarities between Singaporean-Style & Chinese-Style Authoritarianism?

The following is my answer to a Quora question: “What is the differences and similarities between Singaporean style of authoritarian governance and Chinese style of authoritarian governance?” 

China is run by a one party system.  The Chinese Communist Party controls everything.  To succeed in such a system, it is necessary to be a member of the party.  The Chinese Communist Party began as a form of totalitarian state, which has evolved into some form of post-totalitarian oligarchy.  There are no elections in China, and political parties other than the Chinese Communist Party, are banned.  There is strict control over the press and forms of expression, including art, film, and social media.  The compact between the state and the people is that as long as the state delivers affluence, security and economic growth, the people leave the running of the state to the Party.  To some extent, that has worked, and China is an economic power. 

Singapore is a socialist democratic state.  There are elections, political parties are not banned, although political expression is heavily regulated to maintain harmony in a multi-ethnic, multi-religious society.  Singapore is far from a totalitarian state.  While the press is regulated, it is not censored.  This applies to other forms of free expression such as the arts.  Movies are largely censored for pornography and violence, as opposed to political content.  There is little oversight in social media unless posts and comments fall afoul of existing laws on libel, the maintenance of racial and religious harmony, or threaten the security of the state.  The system advantages the incumbent, but it does not stifle political discussion.

Quora Answer: Which Global Industries & Markets Will be Most Disrupted if China Invades Taiwan?

The following is my answer to a Quora question: “Which global industries and markets will be disrupted the most if China invades Taiwan?” 

If Chine decides to invade Taiwan, it would crash the global economy.  China is not Russia.  It is the 2^nd largest economy in the world.  You cannot simply sanction it.  China is also the largest manufacturer in the world.  That sort of production base cannot simply be replaced.  We will have supply chain bottlenecks in every industry and almost every market. 

Secondly, the Taiwan Straits is a major waterway for shipping.  This is not some poor, largely landlocked, nation in central Europe.  Ships cross the North Pacific, from the East Coast of North America to Northeast Asia, and then down to Southeast and South Asia, and back.  Cargo from Northeast Asia also comes through the straits, crosses the Indian Ocean, and transits the Suez Canal to Europe.  Any disruption to that traffic would have serious consequences to all those markets. 

Any conflict involving Taiwan would be a major world war.  The United States has given guarantees for Taiwan’s independence.  They would be involved.  This means American staging areas in South Korea and Japan are targets, bringing those nations into the war.  North Korea and Russia will be pulled in, directly, or indirectly.  ASEAN would fragment because some of those countries would support China, and the rest would either be neutral or support the United States.  China has borders with nations in Central Asia, and would put pressure on them to escalate any low-intensity conflict there to keep American assets busy.  China has ports in the Indian Ocean transit, and will disrupt shipping and supplies.  The Americans would do the same, and all commercial shipping would come to a standstill.  Markets do not react well to such a conflict.

Quora Answer: Why Does the World Bend Over for China?

The following is my answer to a Quora question: “Why does the world bend over for China?” 

The world does not bend over for China.  China is the 2^nd largest economy in the world.  That makes China very influential.  However, we are living in a multipolar world, and China does not have everything her own way.  China has territorial disputes with almost every country it borders.  China has a trade dispute with the US and Europe.  China is facing pushback on its One Belt, One Road initiative in Africa and Asia.  Based on all this, and more, precisely how does the world “bend over” for China?

Quora Answer: Hypothetically, Can the US Defeat a Chinese Invasion of Taiwan?

The following is my answer to a Quora question: “Hypothetically, can the US beat China over Taiwan in a war scenario?” 

That really depends on what sort of war scenario you mean.  If the intent is to stop a Chinese invasion of Taiwan, the US will succeed easily.  The Taiwan Strait, which separates China from the renegade province is around 160 km wide.  The Taiwanese military is of uncertain morale and is thought to lack resilience, but China still needs to secure air and naval dominance to safely send over the invasion force.  That is not possible.  Taiwan’s military is well under 200,000 active personnel.  That means China would need around 300,000 troops just to secure a beachhead and breakout. 

You cannot plan to mobilise that many troops and assets quietly.  The American will know and the Taiwanese will know.  Assets will be moved into the region, and we are likely to see up to three carrier groups, including submarines.  The US already has troops and bases in Japan, South Korea and islands in the Pacific West.  The Americans also have assets to control the Straits of Malacca, where all the oil needed to feed the war effort is going to pass.  All parties know that the US does not need to defeat the Chinese military in its entirety to end the invasion.  They simply need to make it very expensive in terms of cost and casualties.  A major defeat would seriously dampen the legitimacy of the Communist leadership, and there will be domestic consequences. 

China need only wait, and Taiwan will eventually seek a merger.  Even if they were to successfully invade Taiwan, the cost of integrating the Taiwanese economy would be astronomical and crash China’s economy.  The Chinese are not stupid.