Nobody ever learns.
A gauge of Hong Kong-traded Chinese shares surged the most in eight months on Tuesday, as markets celebrated nebulous Party rhetoric aimed at shoring up dour sentiment around the world’s second-largest economy.
I should note that across-the-board gains for Chinese shares might’ve been more short covering than anything else, but to the extent optimism was involved, it’s misplaced.
It’s certainly possible the gains will continue, but in my opinion, it’s not worth the trouble to chase. And that’s me being very polite.
An account of the hotly-anticipated Politburo meeting at which Xi and a handful of capodecina “analyzed the current economic situation and made arrangements for economic work in the second half of the year” (as Xinhua put it, in the readout) contained exactly no specifics. None whatsoever. There wasn’t a single number in the entire statement. Not that anyone should’ve expected numbers, and indeed that’s the point.
The readout was so vacuous that I didn’t bother mentioning it Monday because I assumed (wrongly) that no one could possibly extract a rally rationale from it. It was notable mostly for what wasn’t in it: In addition to being specific-less, there was no reference to Xi’s meme-friendly “housing is for living” mantra. The absence of that familiar exhortation against speculation was taken as a bullish sign for property developers.
The Party promised to address every conceivable challenge — social, economic and otherwise — facing the country, but didn’t say a word about how the government intends to go about things.
For example, “enterprises” will be “encouraged to invest and take risks” and to “actively explore new markets.” “Measures” will be adopted to “keep the country’s foreign trade and investment stable.” Domestic demand should be “encouraged” and central planners should “give play” to the critical role of consumption. Innovation in science and technology “will be given strong support.” Fiscal policy should be “proactive.” Macroeconomic regulation should be “precise and forceful,” and counter-cyclical measures need to be “strengthened.” The middle class should be “expanded.” Employment should be “stabilized.” Government debt risks should be “defused.” Real estate policies should be “optimized.” And on and on.
Nobody would argue with any of that. But making a list of imperatives and “shoulds” is something different from explaining what it is you intend to do to accomplish the long list of goals implicit and explicit in that list. The lack of specifics wasn’t just “disappointing,” as some analysts and China watchers put it, it was absurd. Laughable.
Just read this assessment from one CIO quoted in the media: “What stood out to me was they said targeted but ‘powerful’ measures can be expected. So far, I’ve only heard of ‘modest’ policy stimulus from the government. So the choice of wording is interesting.”
Can you imagine a conversation between that person and an underperforming subordinate? “Listen, Bill, I really don’t think this is working out, you’ve missed your targets for eight straight quarters.” “I know, I know. Just give me one more chance. I’m going to rededicate myself.” “Not this time, Bill. I think this is the end of the road.” “Did I say ‘rededicate’? I meant ‘double-down powerfully.'” “Well, now that you put it that way, you’re getting a raise!”
It’s time for economists, analysts, stewards of capital and market participants more generally to face it: The Party has lost the plot. They don’t know what they’re doing anymore. As I put it two weeks ago, you can’t centrally plan a modern economy that needs to provide for 1.4 billion people. Efforts in that regard won’t just be inefficient, they’ll be wholly ineffectual and policy paralysis will set in eventually as officials grapple with the sheer scope of the task they’ve foisted upon themselves.
That’s not to say the Party won’t make a run at it or that they won’t announce a set of specifics in the days and weeks ahead. But remember: They released two multi-point plans late last year. One for property and another for the measured easing of COVID containment protocols. Xi crashed out of “COVID zero” a month later, and the property market is still beset.
Meanwhile, the Party continues to act like the Pyongyang-style dictatorship Beijing claims it isn’t. Xi’s foreign minister, Qin Gang, went missing a month ago. Again, the foreign minister. Not some low-level bureaucrat. Qin just disappeared on June 25. The Party said he had “health” issues, which was probably true, albeit not in the way that one takes a few weeks off to recover from the flu.
On Tuesday, Beijing announced his departure. His replacement: Wang Yi, of course, Xi’s sharp-tongued top diplomat, who also served as foreign minister prior to Qin. Qin’s Wikipedia page now reads: “Preceded by Wang Yi, Succeeded by Wang Yi.”
Xi’s China is a combination of autocracy, totalitarianism and the mob. It’s an uninvestable farce, and as one Bloomberg Opinion contributor astutely noted, he doesn’t care. It’s that latter point that should really concern investors.
Spot on. China has made some horrible mistakes. RIght now foreign investment is desperate to diversify supply chains away from China. Domestic demand is the answer for China, and state investment is the exact wrong place for them to look for this demand. China desperately needs public goods like a health care scheme, a national retirement plan and unemployment insurance so its population will be encouraged to consume. The export platform model has reached the end of the road. Also cozying up to Putin was a giant unforced error. Now Putin has blocked grain exports from Ukraine. Guess who imports large amounts of grain? China. Guess who buys a lot of Chinese goods- the West! Just terrible decision making by Xi.
And this is the economy everyone is panicking about replacing the US as #1 in short order? Good one. Bidenomics is Trumping (get it?) Xiconomics. Too bad no one who is currently benefiting will acknowledge, understand, or remember that come the next election cycle.
To be clear: China isn’t the problem. Socialism isn’t the problem. Xi is the problem. And really, it’s just “recent Xi.” He’s taking the Mao impression too far. He seems like he may be a little delusional about it at this point. He’s morphed into a cartoon.
I remember being really optimistic when Xi first rose to power. There was an article in the NYT about how he had visited Muscatine, Iowa in 1985 and stayed with a local family. He spoke highly of his visits to America, and Americans spoke highly of him. It seemed like things really could be moving forward to a future relations between China and the United States were on a footing similar to those between the United States and the EU.
It seems like Xi is a true embodiment of the old adage about how power corrupts. I don’t mean that in the sense of corruption-as-crime; rather, I mean it in the sense of corruption-as-decay.
A visit to the mid-west is nice, but a step back with look at his whole bio would have erased your optimism. He is the cultural revolution’s frankenstein beast. Anyone who suffered what he did at the party’s hand, and then become its leader, would be profoundly disturbed. This one is for psychiatrist to explain.
And being that he is an authoritarian, that should have been completely predictable in hindsight. If anything, China is becoming a preview of what the United States would look like with a decade of Trump, or any other far right leader in charge.
Well said
I had hope for China until the Hong Kong suppression…
The word that comes to mind is contradictions….A word Communists used to like a lot…The idea that a victim of the cultural revolution would take power and try to thread the needle has a lot of precedents in eastern Europe before the fall of the wall. There’s plenty of irony to go around, but I for one am not at all surprised- Janos Kadar in Hungary, General Jaruzelski in Poland, maybe even Gorbachev. Capitalism needs democracy and democracy needs capitalism…Xi is more regretful of the fall of the Soviet Union than the cultural revolution- that’s all I need to know…Ask Angela Merkel is she has learned anything from Vladimir Putin about capitalism inevitably leading to representative democracy….
Really liked your point about democracy and capitalism. Past Chinese leaders loosened the constraints on free choice and individual power to enable substantial successes for capitalism in China.
Xi’s approach to governing seems to tighten controls and constraints. But economic circumstances, whether external or internal to China, do not necessarily abide in China’s politics under Xi. Watching Xi try to force certain limited levers of China’s economy in the “correct” direction doesn’t seem to be working well for his purposes.
I thought this would be a good way to punctuate this article lol https://youtu.be/_8xoJRdbJdQ