China's post-Covid economic recovery, once expected to be strong as the country emerged from lockdowns in 2022, seems to have foundered. Consumers and business leaders are struggling with mixed signals from policy makers. Trade data this week revealed exports were down 14 percent year-on-year, their largest decline since February 2020, while imports fell 12.4 percent, far more steeply than expected. These developments, the most recent in a series of lackluster economic data, have undermined expectations for a robust recovery and are suppressing confidence among policy makers and investors.
The Chinese government has tried to soothe markets with a haphazard flurry of assurances and policy measures. Last month, the Chinese Communist Party’s (CCP’s) Central Committee and the State Council issued a 31-point action plan to make the private sector “bigger, better and stronger” – language usually applied to state-owned enterprises under President Xi Jinping’s governance. Meanwhile, public consultations with business leaders this month aimed to discover what is impeding the private sector’s recovery.
Alongside reassurances, Beijing has launched plans to boost consumption, extended tax breaks and mildly cut interest rates and reserve requirement ratios. But these paltry measures are far from the “big bang” monetary and fiscal packages anticipated in the past. Instead, Beijing seems to be relying on rhetoric and signals. For instance, the National Development and Reform Commission (NDRC), in charge of China's macroeconomic planning, has held an unusually high number of press conferences this quarter, with eight in Q3 so far, compared to nine in Q2 and six in Q1.
The much-anticipated Politburo meeting on July 24 failed to announce any stimulus package. It recognized “tortuous progress” in the post-pandemic recovery but did not go beyond the modest policies and guidelines announced before. Meanwhile, a series of symposia are being held by the Employment Department of the NDRC “to develop ideas on boosting consumption” – a move that suggests they aren’t sure what to do in the face of broader constraints on stimulus options like already high debt levels and President Xi’s opposition to “welfarism.”
Xi and the top leadership have not demonstrated clear priorities in the competing goals laid out for officials. Instead, the bureaucracy must juggle the need for stimulus and deleveraging, for boosting productivity and upgrading production while also maintaining employment stability, and for facilitating private sector investment while also preventing what it deems the “disorderly expansion of capital.”
MERICS Analysis: “The sort of policy and messaging caprice we are seeing out of China’s economic planners stems from a lack of clarity in priority-setting from the top,” says Senior Analyst Jacob Gunter. “Until clear indications come from Xi himself, we can expect rhetoric and incrementalism to be the preferred tools of the average official who has few clear orders to implement or space to experiment, and more ideology to interpret.”
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