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U.S. President Donald Trump is convinced China is ready to make big trade concessions because it’s on the ropes economically.

"I think China wants to get it resolved. Their economy's not doing well," Mr. Trump said recently. "I think that gives them a great incentive to negotiate."

The problem is that no one really knows how poorly, or how well, China is really doing – least of all Mr. Trump. The country’s economic statistics are notoriously unreliable. At times, Chinese authorities blatantly fake them.

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“Sometimes they prove inaccurate,” Derek Scissors, resident scholar at the American Enterprise Institute in Washington and creator of the China Global Investment Tracker, argues in a new report. “During downturns, they are falsified outright.”

The state of China’s economy is in the spotlight again as U.S. and Chinese negotiators resumed talks last week to resolve their escalating trade fight. The negotiations are the first since Mr. Trump and Chinese President Xi Jinping called a temporary tariff truce at the Group of 20 meeting in early December. The United States is pushing China to buy more U.S. goods and services, further open its domestic market, enhance protection of intellectual property and slash government subsidies.

The general consensus is that the Chinese economy is slowing. This month, technology giants Apple and Samsung both blamed weaker demand in China for missed profit and revenue targets.

That’s obviously a bad omen, for China and the global economy more generally. China has been a key engine of growth for the world in the past couple of decades.

But the lack of reliable data makes it virtually impossible to know with any certainty whether the Chinese economy is suffering a mild cold, the flu or some kind of chronic disease. It’s also not clear whether the recent slowing is solely because of its tariff war with the United States, or something deeper and structural happening domestically.

Mr. Trump’s contention that China is “not doing well” is at best an uneducated guess. U.S. Commerce Secretary Wilbur Ross dialled up the doom-and-gloom rhetoric, telling CNBC last week that China is facing the threat of civil unrest because it can’t create the “millions of jobs” needed to pacify people in rural areas.

"That creates a real social problem," Mr. Ross said. "That's a very disgruntled group of people."

But who really knows?

China’s official GDP growth target for 2018 was 6.5 per cent – not that far off the 6.7 per cent to 6.9 per cent rate of GDP growth it has experienced in the past few years. Granted, that’s a lot slower than the 10-per-cent clip the country was expanding before the 2008-09 period. But it’s still double or triple the pace Canada and most other developed countries are growing.

Mr. Scissors points out that while GDP stats typically bounce all over the place for most other countries, China has enjoyed miraculous stability, from quarter to quarter and year to year. Remarkably, China’s economy routinely hits the targets set out by the government. A tally of the individual components of GDP often doesn’t match the headline total. That suggests that Chinese officials may be deliberately smoothing numbers to paint a picture of stability – for its own people, and the rest of the world.

The statistical fakery isn’t limited to GDP figures. Data on investment, incomes, debt, labour productivity, stock market capitalization and employment are equally dubious, according to the AEI’s Mr. Scissors. Employment data, he says, are “borderline useless." Official Chinese figures show that the country added jobs every year from 2002 to 2016, even through the worst of the 2008-09 financial crisis and global recession. Unemployment has never risen above 4.3 per cent.

The United States and other countries should be pushing China in trade talks to be much more transparent.

The most important puzzle is what’s happening now. Some economists believe China’s economy is probably growing at less than 6 per cent a year. That would be by far the weakest pace since 1990.

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Mr. Scissors’s conclusion: “China is indebted, aging and in need of an economic strategy to respond to those challenges.”

If that’s true, China will need a lot more than a trade deal with the United States to right its economic ship.

And Mr. Xi’s inability to address those challenges could pose a far greater threat to the global economy than the trade war that has gripped financial markets in recent months.​

Editor’s note: (Jan. 13, 2019) Due to an editing error, an earlier version of this story incorrectly referred to China's President as Mr. Jinping on second reference.
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