China was supposed to cut rates on Monday. Consumer prices are flat in good months and flirting with deflation during bad ones. The last three months of 2023 were bad ones in that regard. Producer prices haven’t grown since September of 2022.

There’s every excuse to ease. The economy, although likely to match the Party’s full-year growth target for 2023 when Beijing releases the data later this week, is moribund, certainly by the standards of what used to be the world’s growth engine. Exports fell in 2023 for the first time since 2016, although it should be noted that was from record levels.

Xi’s property crackdown is still an albatross and as we saw with an aborted attempt to rekindle online gaming curbs late last month, the Party’s still prone to mercurial policy turns with the potential to derail markets — and also prone to firing bureaucratic scapegoats when things go wrong.

Sentiment among Chinese consumers is generally poor, as evidenced by lackluster imports and retail sales. Markets will get an update on the latter this week along with the GDP figures. Remember: It’s not as simple as glancing at the YoY print for something like retail sales in China — the comps are (still) corrupted by distortions tied to “COVID zero,” although we’re finally lapping the last of those.

All of that to say that if the PBoC wanted to cut rates, there’s no shortage of excuses. But they didn’t. The one-year MLF rate (and that’s the key rate in China) was left unchanged Monday. Presumably, that means the LPRs (or at least the one-year) will be unchanged this month too when they’re set in a few days.

Consensus broadly expected the first MLF cut in five months.

This looks like another “rock and a hard place” moment. You might argue that a rate cut would’ve sent the “wrong” signal ahead of this week’s key data releases, but that’s (probably) not it.

It’s also possible Beijing didn’t want to cut rates any further before the Fed starts cutting, or at least to get as close to the first Fed cut as possible before delivering additional MLF cuts to avoid any unwanted side effects from wider rate differentials.

And then there’s bank margins, which Beijing needs to at least be cognizant of, even if “banks are for policy, not profits,” to adopt and adapt the Party’s famous “houses are for living not speculation” mantra.

Ultimately (and this is the “rock and a hard place” part), I’d argue there just isn’t a lot of utility in cutting rates when there’s no demand. Consider this: Data released late last week showed the rate of new loan expansion was the slowest in at least two decades in December.

There are caveats. For one thing, that’s a nominal series and China’s in deflation. Also, December’s release apparently said more about the Beijing’s success in curbing lending within the financial sector than it did about credit extension to households and corporates.

All that aside, one conclusion you can’t draw is that credit demand is robust. Because it’s not. China has a domestic demand problem, and while it’s easy enough to say, “Well, then, they should cut rates!” that can be a road to nowhere if incrementally cheaper credit proves insufficient to revive animal spirits.

Once again, it comes back to the notion that China needs fiscal stimulus — if the private sector doesn’t want to spend, the state needs to fill the void. With allowances (and some begrudging admiration) for the Party’s aversion to irresponsible fiscal expansions (Xi wants “high quality” growth), it’s somewhat remarkable that China’s central planners are proving so reluctant to do any central planning unless it’s chip-making or enforcing social norms.

As Bloomberg noted last week, household demand for mortgages was tepid in December, suggesting measures aimed at bolstering the property market aren’t having a big impact. M1 growth was unchanged at 1.3%, the same linked article noted, adding that the wide M1-M2 growth rate gap “has drawn the attention of economists and authorities in recent months.”

So, what can you do? Well, not a lot if you refuse to embark on ambitious, big-ticket fiscal stimulus. The PBoC is dusting off “Chinese QE.” Maybe that’ll work. But ultimately, you can’t force households to spend (although if you wanted to, a digital yuan would be the most effective tool) and while you can bully and badger SOEs and policy banks, and elicit obsequious public pandering from the private sector, you can’t force corporates to be more optimistic either.

One more thing: After buying some Mainland stocks during the last week of 2023, foreign investors sold more than $1 billion in A shares over the first two weeks of 2024.