The thing that’s great about strict autocracies is… well, nothing.

Nothing’s great about uncompromising authoritarianism, which is why half of Americans are pulling their hair out right now: They can’t convince the other half that the road down which the country’s traveling leads directly to the kind of hell where government, far from being unassuming and hands-off, is in fact menacingly omnipresent. The size of the bureaucracy’s irrelevant if there are troops in the streets.

While there’s no silver lining to autocracy for the subjugated populace, there’s a lot to like about it if you’re the autocrats. One perk is that you don’t have to worry about public opinion because the public knows not to have one. An opinion, I mean. Or at least knows not to voice one if it’s anything other than rah-rah.

It’s well-known that China operates on a modified social contract whereby the populace accepts strict, one-party rule in exchange for steady, predictable quality-of-life improvements. Here’s an illustration:

Suffice to say the Party has by and large held up its end of the bargain, and the fact that the Party still exists is a testament to the notion that the public has likewise kept its promise.

Under Xi Jinping, the same social contract remains in force, but whatever “right” (and I put that in scare quotes because the Chinese people have no actual rights, which makes it ironic when the Party wails about violations of the country’s rights on the international stage) the people had to make demands of the government is attenuated.

In late 2022, we learned that Xi would rather not crack down violently on regular people. Chinese, at wits’ end with two years of strict public health protocols, began to take to the streets. Rather than risk a paroxysm, Xi abandoned his infamous “COVID zero” strategy.

But make no mistake: That wasn’t an invitation for Chinese to protest whenever they’re dissatisfied with something. Rather, it was a grudging admission of what, by then, was a global consensus that Xi’s policies around the pandemic, however well-meaning, were hopelessly anachronistic and thereby untenable, even in a strict, centrally-planned society.

I say all of that to introduce yet another round of moribund price growth data out of China, where headline inflation was negative again in September. Although core inflation moved up to 1%, the briskest since early 2024, that momentum will probably fade in the months ahead as the YoY comp shifts.

Producer prices fell 2.3% which actually counts a decent result in the context of what’s now a three-year-long bout of factory gate deflation.

This belongs in the dictionary next to the entry for “malaise,” and September’s price data suggests the surprising uptick for imports in the latest trade figures wasn’t indicative of rekindled domestic demand.

Dong Lijuan doesn’t necessarily agree with that latter assessment. “An improvement in demand and supply has stabilized prices in some industries, such as coal mining and solar equipment,” Dong said Wednesday.

If you’re unfamiliar, Dong’s head of statistics at the NBS which is a joke on its own. He’s basically the world’s foremost macro data manipulator. If he falls out of favor with Xi, there’s probably a place for him at Trump’s BLS. Shades of Jared Vennett. (“That’s my quant. Look at him. You notice anything different about him? Look at his face. Look at his eyes. I’ll give you a hint: His name’s ‘Dong.’ Yeah, I’m sure of the math.”)

While Dong’s right (I assume) about “some industries” exhibiting price stabilization, the overarching picture one gets from the data is that the world’s second-largest economy is still struggling to extricate itself from the jaws of deflation.

Also on Wednesday, the PBoC released loan data for September, traditionally a strong month for credit growth ahead of the holiday in October. New yuan loans were CNY1.29 trillion, well below estimates. Recall that Chinese were actually net re-payers of debt in July (see the white circle in the chart) for the first time ever.

The yellow annotation in the chart highlights what, in my view, is the most disconcerting aspect of China’s current macro predicament. The implied growth rate of the outstanding loan stock slipped again in September to just 6.6%. That metric is in free-fall.

Analyst commentary on Wednesday revolved around the idea that the figures will prompt the PBoC to deliver another RRR cut. Some such color implicitly suggested that’d be more effective than, say, a cut to one of the other policy rates, but it’s not obvious why. Either way, you’re addressing the supply of credit (freeing up liquidity or making credit less expensive) as opposed to demand for it. If there’s no demand, it doesn’t matter how cheap credit is, nor whether loans are readily available.

As SocGen’s Michelle Lam and Wei Yao put it, previewing the the Fourth Plenum, “addressing domestic structural problems should be one focus of the next five years, especially how to unlock the consumption potential through reforms and demand-side stimulus.”

Frankly, I don’t think the Party has any good ideas for resuscitating demand. I think they’re going to keep pushing on the proverbial string to no (or very little) effect, needlessly burning through monetary policy’s rate-cut capacity in the process. And I think Xi’s going to crack down on the cutthroat competition pushing prices lower in some sectors and try to pass off the results as evidence of a victory over deflation.

At the end of the day, the only way to fix this situation is to revive the public’s joie de vivre, and you can’t do that with strong-arm tactics. Put differently, you can’t force people to be happy. I speak from some experience. I’ve spent a decade endeavoring to compel myself to happiness. It hasn’t worked yet and I see no reason to believe it will in the future.