When China was in the grip of one-party totalitarian rule and a failed economic model, few in the West trusted a word that came out of Beijing. How times change.

The Communist Party, as it styles itself, still runs the People's Republic. The regime is still as oppressive as they come – carrying out more executions in 2014 than the rest of the world put together, according to Amnesty – and the latest economic experiment has gone, let's say, a little awry. But let's not worry about that.

After all, the Great Market Correction hardly compares with the horrors of Mao's Great Leap Forward. Millions of Chinese might be losing shirts and savings, but that's not the same as losing their lives. Staggering levels of personal debt run up during a stock market bubble might end the regime's hopes of “consumer-led growth”, but it's hardly a reason to quibble over the capitalist miracle, is it?

That depends. In most theories of markets and competition, the quality of information is fundamental. With the Shanghai Composite index stained a deep (non-ironic) red, with governments and investors struggling to work out the implications for the rest of us, with dire forebodings on all sides, it might be worth asking what China's embrace of “the capitalist mode of production” has entailed.

To put it otherwise: we didn't trust a ruthless regime when it was bent on world revolution. Why trust it when it goes on abusing human rights while cornering the iPhone market? The simple answer is that, ever since its own little wobble in 2007-08, the West has bet a great deal on the emergence of China as the planet's second-largest economy. With our own economic futures at stake, we have happily ignored the regime's habit of confusing truth with propaganda.

Interviewed on TV the other night, Gillian Tett of the Financial Times, author of Fool's Gold, a fine book on the 2008 disaster, observed blithely that “nobody believes the statistics” where China is concerned. Christopher Balding, associate professor at the HSBC School of Business at Peking University, has wondered meanwhile how there can be a stock market panic over growth when the regime's official 2015 estimate has been cut by only 0.1 per cent.

As he put it in a blog last month: “I am always puzzled when I hear people talk about the 'weak' Chinese economy when they turn around and talk about seven per cent growth. The official growth estimate for 2015 has declined from only 7.1 per cent to seven per cent, but somehow this 0.1 per cent has sent commodity prices plummeting, close trading partners like Singapore into recession, caused electricity consumption to flatten, and cars sales to evaporate. There seems to be an inability to reconcile facts and logic surrounding the Chinese growth story with official GDP numbers.”

Politely, Bloomberg News describes data from China's National Bureau of Statistics as “notoriously enigmatic”. The financial service – which puts the country's first quarter growth at just 6.5 per cent – notes that even official unemployment figures only cover “urban residents who bother to register as unemployed (and ignore) more than 200 million migrant workers”. Does anyone know the truth, then, about inflation, debt, the commodities markets? Not if they put faith in China's numbers.

What Professor Balding calls “statistical manipulation” isn't new. Extracting the truth from a one-party state has been a challenge, to put it mildly, since Deng Xiaoping began the experiment with state capitalism at the end of the 1970s. You can make educated guesses, of course, but those are of limited use. It might be more important to ask why a huge part of the global economy has been riding on the fairy tales of Chinese party hacks.

As Professor Balding asked in his blog: how does an industrial economy grow at seven per cent when electricity consumption is supposedly increasing by just 1.1 per cent? The fact of Chinese growth is not at issue: it is (or has been) real enough. But long before the crash of the Shanghai Composite there was mounting evidence that China was in trouble. Reporting for the Spectator, indeed, Elliot Wilson noted recently that “the overwhelming sense is one of pessimism and urban decay”.

When there is no obvious crisis, fake numbers hardly matter. When fantasies unravel, there are consequences. The hint of a slowdown and confusion within the regime has flattened a stock market that had grown by 150 per cent in a year. The bursting of that bubble is of no great significance in itself. But it has revealed a deeper weakness – a debt problem, a currency problem, a growth problem, a capital flight problem, a problem of competence – concealed within layers of fiction.

Why, though, should any Western government or investor affect surprise now? If the official statistics were long known to be dodgy, no one presumed that good news was being hidden. In reality, the seven per cent growth figure was supposed to support Beijing's claim that its economy was slowing, not heading for recession. As things stand, we simply do not know the truth. A world economic order (another one) hangs on the half-truths of an obnoxious regime.

The West is no position to moralise. It is not so long ago that the rotten foundations of our own part of the global economy were exposed. The rigging of Libor affected just about every transaction on the planet. It was fundamental to financial systems and it was crooked, concocted daily by a few greedy men out to make a fast buck. For long enough, Libor was a lie, part of the bigger lie of international banking. When that began to fall apart we were happy enough to give thanks for the Chinese miracle.

It was China that took the global strain when the West's financial systems buckled. It is to China that any country with ambitions to export has looked first. The Chinese have been the inward investors of choice for every finance minister from the United Kingdom to Africa and Australia. The world's commodities markets have come to depend on China's appetite for raw materials. Consumers everywhere have been contented customers.

Take Libor and China's GDP figures together and the claims made for liberal capitalism look worse than suspect. Free markets are impossible, even in benign theory, when information is falsified, when transactions are founded on lies. Whether the cause is personal corruption and greed, or the authoritarian fantasies of a one-party state, the result is the same: things fall apart. Capitalism will do that, of course, time and again.

At the time of writing, the Shanghai Composite is down another 7.6 per cent, but western markets have rallied strongly thanks to an interest rate cut by the People's Bank of China. The Dow has roared back, to cries of jubilation and relief. Confidence, supposedly, is being restored around the world, even if the Chinese authorities have given up attempts to prop up their stock market.

Officially, this is, for today, just as those authorities have claimed: a slowdown in the world's second-biggest economy and nothing more. A recession in China, if such is the truth behind the numbers, will keep for another day. We had better believe it.