Last week, China held a major meeting to draft out long-term strategies for its economy.
The meeting — held once every five years — was closely watched because the world’s second-largest economy has not been able to claw itself out of an epic property crisis post-pandemic, and its once-mighty consumers are just not splashing out that much anymore.
At the end of the meeting, called the Third Plenum, Beijing released a lengthy document spanning 22,000 Chinese characters. Economists and analysts have tried to read between the lines — with much difficulty.
“Unless you attribute a great deal of significance to Beijing’s ‘Five-Sphere Integrated Plan’ or the ‘Four-Pronged Comprehensive Strategy,’ the plenum’s communique was long on slogans and short on substance,” David Lubin, a senior research fellow of global economy and finance at Chatham House, a London-based think tank, wrote on Monday.
In other words, it’s what he calls a problem of “they just don’t say very much at all.”
Slogans over actions
It’s not that unusual a situation: Beijing loves slogans.
The slogans also do “do genuinely reflect deep thinking about policy,” Lubin acknowledged.
“When Beijing officials talk about ‘the new development philosophy’, ‘Chinese modernization’, ‘high quality development’, ‘new quality productive forces’, or a ‘high-standards socialist market economy’, these are references to real objectives,” he wrote.
To be fair, Third Plenums also tend to focus on long-term economic policy and reforms, but the message of continuity this time isn’t quite the jolt markets were looking for.
Analysts and investors were disappointed because there wasn’t enough clarity or detail about what authorities are going to do to tackle the challenges facing China’s economy.
“It fixates on what Beijing wants to happen without explaining how it will do it. The package is not coherent. It also doubles down on policies raising alarm bells globally about China’s growth model and persistent macroeconomic imbalances,” Rhodium Group analysts Daniel Rosen and Logan Wright wrote for the Center for Strategic and International Studies on Monday.
China has been trying to engineer a painful economic transition from one reliant on real estate and lower-end manufacturing to the hot new sectors of electric vehicles, batteries, and solar cells.
Third Plenum did not address consumption
China’s economy grew 4.7% in the second quarter from a year ago. Exports were a bright spot, but consumption sentiment has been extremely poor, with people preferring to save money rather than spend it.
Beijing has been trying to boost economic growth by driving domestic consumption through subsidies and trade-in deals, even for property purchases. However, success has been limited.
Measures to boost domestic demand and consumption are a “big missing part” in the Third Plenum, Yue Su, the principal China economist at the Economist Intelligence Unit, said in a webinar on Tuesday.
“Because of the lack of stimulus to boost household sector confidence, we observe a really bumpy recovery trend in consumption and retail sales. We continue to expect this trend to continue,” she said.
Chatham House’s Lubin attributes Beijing’s reluctance to stimulate household spending to fears that public debt may get so big that it would threaten financial stability and national security.
“What all this adds up to is an exceptionally defensive approach to managing the economy, and the best way to explain this is in the context of the geopolitical challenges that Beijing sees itself confronted by,” wrote Chatham House’s Lubin.
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