The August 29th issue of the Wolf Street reported that the Chinese economy is shrinking rather than slowing down.

Who Truly Believes China’s GDP Growth Rate Is 7%?

When forecasting the future of the Chinese economy, many have pointed out that the “hard landing” scenario of 1-3% economic growth to be the worst-case scenario. However, according to the Wolf Street article, the situation could be far worse.

Over the past six months, China’s GDP growth rate has officially remained at 7 percent, but many analysts no longer trust in this figure.

To analyze the current state of the Chinese economy, many observers are now using “electricity consumption”, “rail cargo volume”, and “bank lending” as economic indicators.

Electricity consumption and the shipping of manufactured goods are indispensible to economic activity, so if China’s economy is continuing to grow, electric power consumption and its volume of goods transported should rise.

However, in the last six months, electricity consumption and freight traffic volume in China have been declining. In terms of lending, the Chinese government has lent money in order to keep companies that make nothing out of bankruptcy, resulting in a doubling-down of their debts.

One example that sheds light on the shrinking Chinese economy is China’s auto industry. China’s auto sales rose 3.7% from a year earlier in April, but grew just 1.2% in May, and in June, sales fell 3.4%. What is worse, that figure dropped 6.6% in July. The Wolf Street said, “either auto sales have by sheer magic decoupled from the economy, or the official 7% GDP growth is a political delusion…” pointing out that the economy itself is actually shrinking.

China’s Autocratic Regime Hampers Economic Reform

The state of the actual Chinese economy may be far below the worst-case scenario of “1 to 3 percent growth”, and it is highly likely that it is contracting.

In the past few years, the Chinese government has been working on reforming their economy; China has been attempting to shift from the mass-production of inexpensive products to making high value-added products and promoting domestic demand. Nevertheless, with the rapid deterioration of economic conditions, it has given up on its reforms, and has desperately thrown away money to support companies whose conditions are not expected to improve.

China has been trying hard to combine “capitalism” with “autocracy”, but the contradiction between capitalism, which is based on the disclosure of information, and autocratic regime which adopts obscurantist policies to control its people, is beginning to come to light.

If China wants to enjoy long-term prosperity, China must end its one-party dictatorship and give its people political freedom.