Phrases like “without specifying an amount” and “without specifying a time frame” are prevalent in mainstream media recaps of Chinese economic policy briefings.
If I spent a week sorting through historical coverage of such briefings, and I endeavored to tally all instances of those phrases and phrases like them, I’d have a very large number.
Because that’s what’s usually missing from Chinese policy briefings: Large numbers. Often, there are no numbers at all and rarely does the government commit to a time table. That’s problematic because an economic plan with no numbers and no time frame isn’t really a plan.
On Saturday in Beijing, finance chief Lan Fo’an was widely expected to do what National Development and Reform Commission chair Zheng Shanjie failed to do on October 8 — namely, provide a detailed description of new fiscal stimulus measures. The lack of details from Zheng appeared to confirm the suspicions of skeptics (skeptics like myself) who warned that if past was precedent, the Party would underwhelm, at least as it relates to communicating the particulars.
Long story short: Investors who aggressively bid up Chinese equities both on the mainland and in Hong Kong needed brass tacks from Lan on Saturday. No more platitudes, no more summaries, no more bullsh-t, for lack of a more decorous term. I’m not sure Lan delivered, frankly.
The biggest problem I saw was the lack of a headline number for central government debt sales and/or deficit-spending. Lan used the word “large” to describe prospective issuance but that’s a communications failure on two fronts:
- “Large” isn’t a number, it’s just an adjective.
- Absent a commitment, “large” doesn’t apply to anything.
As a reminder, analysts were looking for a headline commitment of anywhere between CNY2 trillion and CNY3 trillion. To take a page out of the Party’s book by not bothering you with the “boring” specifics, suffice to say China strategists really would’ve preferred a “clean” read from Lan on that, lest they (analysts) should have to resort to yet another speculative math exercise that cobbles together estimates of hypothetical “head room,” counts “freed up” liquidity as money spent and imputes to the government outlays the Party hasn’t committed to.
No such luck. Lan didn’t get anywhere near the kind of unequivocal pledges markets hoped to hear from the MoF and he assiduously avoided the policy nuts and bolts.
He said Beijing intends to assist local governments in mitigating off-balance-sheet debt, a perennial source of consternation for China watchers (and a wellspring of China bear narratives). The idea, I guess, is that if the Party can effectively assume some of that debt (which is basically what they’re doing when they issue sovereign bonds to fund local debt mitigation), local governments will be free to facilitate economic activity at the regional and municipal level. Lan declined to give specifics, though.
Local governments will be allowed to buy up unsold housing inventory with funds from their special bond quotas, presumably contingent on a pledge to convert that inventory to affordable housing. That’s not new. It hasn’t worked before and if the question is why it will now, Lan didn’t appear to have an answer. Again, no specifics.
He also said China’s going to recapitalize the big state banks. Sounds good, right? Maybe. But I’d say three things. First, that isn’t new. It was tipped last month. Second, they don’t need it, and you don’t have to be an analyst to surmise as much. These are de facto government lenders operating in an overbearing, autocratic police state. Do you reckon they’re undercapitalized? That’s a rhetorical question. Third, although injecting more capital into Xi’s beholden behemoths may help ameliorate margin pressure from Pan Gongsheng’s rate cuts (and Chinese banks do need to put a floor under margins), thereby making them more likely to lend, if there’s no demand for credit it doesn’t much matter. Or anyway not enough to turn around an $18 trillion economy.
And that gets us right back to the crux of the issue: China needs demand-side stimulus, and I just didn’t hear, from Lan, the kind of ironclad, all-in commitment that would justify the hype around his weekend briefing. As Bloomberg put it, “there’s no new stimulus specified to incentivize consumption… and no specifics on subsidies for households either.”
So….classic “pump and dump”?
https://en.m.wikipedia.org/wiki/Pump_and_dump
I mean I think so. The excuse today (Lan even whispered as much to a deputy) was that they need to wait on approval from the higher-ups later this month. But if that was the case, then why call another briefing? And there’s always an excuse. It’s just excuses after excuses. I think the reality is just that this is really, really hard, and they don’t have perfect answers. That’s one problem with governments like Xi’s: You can’t admit that you don’t have all the answers, because that’s an admission that you’re not in total control.
My question was rhetorical- I have read every word you have written about China; and on this subject, I believe you and I are in total agreement 🙂
Getting harder to see how this will lift 2025 growth to 5%. Long decision making process, sums yet to be determined, actions yet to be decided, very laggy transmission.
Suppose after another month of meetings the central govt bonds are issued, some LG debt mitigated, state banks recapitalized . . . in mid November. Is the economy supposed to explode in December, one Bacchanal month of drunken spending to lift the year to 5%? Seems very unlikely as well as un-Xi. Yet the govt seems to have doubled down on the 5% rhetoric.
Maybe the statisticians have been instructed to goal seek 5%. How will they paper over the chasm between the official December exuberant growth of 10% or whatever and the sullen private market data?
Silver lining, I guess, is that after failing to make 5% in 2024 – or having to transparently fake the numbers – the govt may be compelled to actually do the great big stimulus thing in 2025. If I were a Chinese broker, that’s how I’d spin it.
By now, Xi’s men have heard from many sources, for many years, from govt-associated economists to the markets, that they need to focus on the consumer in a major and structural way.
But almost everything they have trotted out, as un-formed as it is, focuses on debt and investment – and in the MoF briefing, almost all on debt.
Is this because the govt still doesn’t agree that the consumer and the consumer economy needs major immediate help (stimulus) and major structural changes (reform)? That would be very negative.
Is this because it agrees, but needs time to figure out what to do? For the structural changes, that is understandable if not encouraging; the scale and cost of the required changes could take a decade even at “full speed ahead”. For the stimulus, that is less understandable; the US quickly figured out how to get $4TR to its households, China should know how to get a much smaller sum to its households, unless the govt just woke up to the idea of major stimulus.
Or is this because it thinks the full scale of the debt problem is such that central govt funds have to be committed to debt relief, and – rightly or wrongly – it feels fiscally constrained in its ability to do either major stimulus or structural reform? That would be very discouraging as well. But possible, I think.
What I find amusing is the assumption that stimulus money will be productively employed. Centralized government is oriented to supply production. Stimulating demand and trusting that supply will respond is a capitalist notion foreign to the current government.
The demographic issues facing China means that hitting past growth numbers will become even more unrealistic. Even if you could believe any statistics published by the state.