There were precious few surprises on offer in Li Qiang’s first annual work report, delivered Tuesday before a crowd of automatons gathered in the Great Hall of the People.
China’s growth target (about 5%) is either ambitious or not depending on who you ask. It doesn’t much matter: Barring some manner of acute crisis, Beijing will say they hit it. That’s not a joke. I mean, it’s a joke in the sense that most of what comes out of China’s statistics bureau can’t be taken seriously, but I’m not kidding. Unless there’s a major macro disruption, we’ll be looking at figures ~10 months from now that suggest growth for 2024 was 5%, give or take. That, in turn, means any and all “analysis” you read today regarding the growth target is an exercise in futility.
Officials in Beijing ran out of ideas for rescuing the economy a long time ago. The PBoC’s pushing on a string with incremental easing and the same’s true of last month’s “record” reduction to the five-year LPR tenor, which I called “meaningless.” The problem’s not the cost of money, nor the supply of credit. The problem’s moribund domestic demand. Between his hopelessly mercurial approach to socioeconomic reform and macroprudential policymaking and insistence on keeping Chinese boarded up in their apartments in 2022 long after the rest of the world moved on from lockdowns, Xi killed the country’s joie de vivre.
The simple figure above leaves no room for doubt: The Shanghai lockdown permanently impaired the national mood. And it was presided over by then local party boss Li Qiang. Li was Xi’s Shanghai lockdown enforcer. Now he’s premier. Small wonder sentiment’s still hopelessly depressed.
It’s a bit maddening to read coverage of the NPC from Western financial media outlets: Although they do a good job enumerating the myriad challenges facing the world’s second-largest economy, and while they do point to legacy drag from Xi’s property crackdown and COVID policies as the likely cause of the protracted macro malaise, they can’t (or won’t) risk stating the unvarnished truth, I assume for fear of losing whatever access they have to the Mainland and/or jeopardizing their operations in Hong Kong. That unvarnished truth is that Xi’s not just a dictator, he’s an idiot. Sometimes, I think he might be a certified dullard. A diagnosable imbecile. We’re talking a pig farmer here, after all.
If I lived on the Mainland, I’d be arrested by this afternoon for saying what I just said. If I lived in Hong Kong, the same. But let’s face it: Xi’s evincing spectacular witlessness when it comes to managing China’s economy. In 2021, I marveled at the extent to which his overnight decrees targeting tech firms seemed almost designed to trigger market mayhem and confusion. Fast forward three years, and Xi’s penchant for self-defeating ham-handedness is on display across the entire economy.
I realize China wants (and needs) to avoid haphazard, kitchen sink-style stimulus. I understand that building ghost cities and bridges to nowhere is counterproductive. But for God’s sake, Xi’s presided over what, if we jettison the technical definition of recession given that it isn’t applicable to China, is a three-year (and counting) stumble which, among other things, has derailed China’s quest to overtake the US economically and permanently impaired the country’s reputation among international investors and overseas capital.
In a testament to the macro and market torpor, yields on Chinese benchmark government debt are loitering near multi-decade lows despite ongoing (if incremental) rate cuts and stepped-up bond sales. The population’s shrinking, local governments are overleveraged, the federal government refuses to be the spender of last resort (notwithstanding the as-expected announcement of CNY1 trillion in special bonds on Tuesday) and as a result, China’s staring at a deflationary quagmire with no obvious way out.
Li on Tuesday acknowledged the scope of the challenges. It won’t be easy, he said, for China to hit its targets. The country will “need policy support and joint efforts on all fronts,” he went on. What the country needs is a new leader. At this point, I think nearly everyone understands that, but nobody’s going to say it. Not on the Mainland. And certainly not from within the Party structure. You’d be killed.
I’m not exactly breaking any news here, but the disconcerting reality of Xi’s China tends to receive short shrift on some days, perhaps because fatalism has set in. We’re living in a new geopolitical bipolarity and one of the two hegemons is run by an apparently hapless tyrant whose despotism is increasingly manifesting as failure. The read-through for Taiwan is quite ominous. Dire, I’d venture.
TLDR: Is Xi an imbecile? – Yes.
Now to the issue at hand, what solution does China have economically to boost demand?
From what I hear on the ground people are out of money. Traditionally local governments depend on land sales to fund themselves, now some local government employees are not being paid their salaries due to effectively bankrupt local government due to debt burden.
Yep. Xi is a dolt, but a very insecure one. Egomaniac w/ an insecurity complex, a phrase some readers may have seen in another context.
I’m sure you’re aware, and many/most readers on this site know, Xi’s owes his rise to power to political favoritism. He is one of the “princelings” entitled to positions of power, in contrast to at least some of China’s prior upper level leaders (e.g., Li Keqiang) who were well-educated and cared (at least somewhat) about the people.
Xi may attack Taiwan to minimize attention to his failures, but it’s only a matter of time before a bloody revolt led by the people challenges Xi or a rival faction assassinates Xi and his band of idiots and thugs. Unfortunately, time is not on the side of the Chinese or Taiwanese people.
Wasn’t the “peaceful” dropped from “reunification” in some recent official CCP speech or statement? I think I read that but can’t find the reference now.
I think what we have here is “long Covid with Chinese characteristics.”
I haven’t dabbled in any AI image generators, but would love to have a look at Xi with a blonde combover and a 1/4 pound of orange bronzer on his face. Maybe the best thing for the Chinese economy (as well as its own and neighboring populations) is for someone to convince Xi to swap his soccer fandom for a time-consuming golfing compulsion.
Nice in your face article, that as you point out would land you in prison or worse if Xi could (and likely ignoring any national borders to do so, much like MBS or Putin).
The best-worst form of government ousts a dictator, even when they have a bad 8 years that leads to 2 tragic senseless wars and ruining the global economy. I wonder if Xi’s looking for a new record in how fast he can run his country into the ground; I feel bad for the hundreds of millions of people who are enslaved into that downward spiral (at least Russians could flee).
I don’t think Xi’s smart enough to become the alpha male of 1.4 billion people and suddenly turned into a cretin. More like he hit his head on the Peter Principle ceiling.
A wholly different decentralized and limited governance is needed, not merely a new boss. They have a negative wealth effect: their stocks and property values go down and their currency is loses value. And some their human capital, young people, are “lying flat” because they don’t see much hope for the future. A surveillance state corrodes the human psyche, and destroys initiative, motivation, and private enterprise.
Extreme skewing of income and wealth inequality is what brought Mao to power. Xi probably saw that reemerging in China when he cracked down on BABA and other billionaires.
He can also see the resulting swing towards right-wing populism in the west in recent years thanks to increasing inequality in our economic system. It must evoke memories of Chaing Kai Shek’s regime when Chaing’s cronies and his triad partners squeezed every penny (fen?) out of 99% of the population.
Maybe he has a different historical perspective versus those of us in the west who view shareholder returns as the sacrosanct societal goal.
I have thought that as well – Xi as Redistributionist In Chief – but his policies have so far been bad for China’s middle income (high unemployment, wage and benefit cuts, lost jobs, lost money in almost all kinds of savings vehicles plus any houses they won) and lower income (China’s peasants and migrant laborers don’t get much attention in Western media, but what I’ve found suggests they, too, have suffered from the economic slump while receiving no significant benefits). So if he is trying to redistribute wealth away from the rich, he’s so far not managing to direct that wealth to the not-rich – instead, wealth is simply evaporating.
“own” not “won”
JL – good points on the outcomes. Yet someone snarkier than I might ask if you were speaking of the PRC or the USA. That is scary.
The main article doesn’t celebrate shareholders, it laments that a war or crackdown is the strongman answer to internal unrest. Despite the US right wing propaganda that the current economy is terrible (as reflected in Republican answers in polls), the US economy is among the best in the world – so much so that legal and illegal immigration “is a problem”…
Now if your point is that the US should address the inequality chasm then you don’t have to speak in the 3rd person: it’s a real problem. Luckily we have a democracy where you can run for office or proclaim the problems you see as loud and wide as you want. But maybe that’s a poor historical precedent for the enlightened chinese people who only need an ever more vigilant state surveillance apparatus for their voices to be heard?
The proof is in the results. Thirty-plus years of data. Being able to complain matters little when non-economic issues drive voters.
But things will surely get better for folks on Main Street next year once we’ve carried out mass deportations and imposed draconian import taxes.
Anonemouse – do a web search for Trump & Insurrection Act. Your next president’s advisors have already done the groundwork to use the active military to quell anti-Trump demonstrations. So, enjoy your right to loudly proclaim the problems you see while you can.
Of course, we can count on the supreme court to step up and prevent it, right?
Thaere’s one headline Bloomberg won’t ripoff.
This is absolutely brilliant. Is there a way I can share this? Please advise.
A few months ago, I put in a trial feature. If you share the link to the article with someone who isn’t a subscriber, they can sign up for a limited trial to read.