Enodo Economics recalculation of China’s first quarter real GDP growth was only +2 percent versus the +5.6 percent number officially reported by the central government.

The U.S. Federal Reserve recently warned that since China supposedly transitioned from a communist command economy in 1993, “Cooking the Books” by falsifying provincial level data continues to be a common problem due to a lack of “political independence.”

China’s official Xinhua News reported in mid-April that first quarter GDP growth jumped to 5.6 percent “largely propelled by the country's fiscal stimulus as well as energetic reform and opening-up. But Diana Choyleva at Enodo Economics, who painstakingly has been recalculating China’s real (after-inflation) quarterly growth rate since 2004, reports that plunging Chinese exports are now threatening jobs and the economy.

China claims that real GDP has been very stable since Donald Trump became president, down only slightly from the 6 percent real GDP rate in January 2017. But Choyleva calculates that China was drastically understating its roaring 9.8 percent real GDP growth when President Trump was first inaugurated, and now it is drastically overstating its dismal +2 percent real GDP growth in the first three months of 2019.

Enodo calculates that China has seen virtually zero real growth of exports since President Trump took office and exports suffered a -2 percent decline in the first quarter. To offset stagnant exports since 2016, China has been spiking domestic consumption with what Enodo calls “old-style stimulus to prop up the economy.”

Fearing its first recession in 30 years, China’s Premier Li Keqiang announced in March that the central government would stimulate the domestic consumption in 2019 by slashing $289 billion in taxes and fees. That was almost twice the 2018 stimulus of $185 billion. Li said Chinese officials need to live within their means by reducing government spending for overseas trips and travel for local politicians, according to Forbes.

Enodo comments that many investors are naïvely expecting that the G-20 Meeting in Japan on June 28 and 29 will create an environment to negotiating a grand bargain between China’s President Xi Jinping and President Trump. Some are expecting a deal along the line of the 1985 Plaza Accord between United States, France, Germany, the United Kingdom, and Japan to resolve trade and currency manipulation concerns.

Such hopes assume that the trade war between the U.S. and China is just about tweaking the overly favorable terms in the 2001 World Trade Agreement that made China the export factory to the world. Enodo argues the current conflict is a “Tech War,” because “data protection and global technology standards are the very area where America and China will never see eye to eye because of their competing ideologies.”

China externally presents itself as the “champion of globalism, but the Red Dragon internally launched two major technology initiatives in 2015: ‘Internet Plus’ to meld digital and real-world economies and ‘Made in China 2025’ to move up the manufacturing value chain to dominate cutting-edge tech sectors. Enodo argues:

“The goal is to increase the domestic content of “core” technologies to 40% by 2020 and to 70% by 2025. These are advanced information technologies including artificial intelligence and quantum computing; automated machine tools and robotics; maritime equipment and hi-tech shipping; rail transport; self-driving and new-energy vehicles; power equipment; agricultural equipment; new materials; bio-pharma and advanced medical products.”

If successful, China will dominate global technology governance by supplanting many of the international technology standard pioneered by American companies.

As part of an American strategy to combine geostrategic containment and economic engagement, referred to as “congagement,” the U.S. supported China entering WTO with the reduced compliance requirements of a developing nation. But as China has grown to the second largest global economy, it refuses to give up its predatory advantages.

President Trump and President Xi both understand that the escalating U.S. tariffs are not going force China to conform to liberal free-market standards of behavior by abandoning a development path that strictly serves its own self-interest.