Why is China not rushing to fix its ailing economy?
REUTERS, Beijing
With China at risk of tipping into prolonged stagnation and a spiralling property crisis threatening financial stability, there is growing unease over why its leaders are not rushing to revive the world’s second-largest economy.
Even in a country known for opaque and drawn-out decision making, investors, analysts and diplomats are pointing to signs that Beijing seems hesitant to deliver the bold policies needed to prop up an ailing post-Covid recovery.
This is not just an economic problem but a geopolitical one.
US President Joe Biden - at loggerheads with China over hot-button issues like Taiwan, the democratic island Beijing claims as its own - last week called China a “ticking time bomb” due to its economic ills. “That’s not good because when bad folks have problems, they do bad things,” Biden said.
So why has China’s response been so tepid?
The view of several China watchers is that President Xi Jinping’s focus on national security is restricting and working counter to the economic effort, scaring off the money Beijing says it is seeking to attract.
“The core problem this year is that the leadership has given vague, high-level instructions for officials to balance economic development against national security,” said Christopher Beddor, deputy director of China research at Gavekal Dragonomics.
“If officials are unsure what the leadership wants them to do, they’re likely to put off any action until they receive more information. The result is policy paralysis, even if that comes at a substantial cost.”
Others say the Communist Party’s ingrained hesitancy towards measures that could shift power from the state to the private sector, and a government stacked with Xi’s loyalists, may be stifling the policy debate and stymieing the response.
To be sure, change in China can take time, as demonstrated by its insistence on maintaining economically damaging Covid-19 restrictions through most of last year, even as the rest of the world opened up.
China has shown timely resolve in the past, responding comprehensively to stem growth worries during the 2008-2009 global financial crisis and a capital outflow scare in 2015.
Major policy change is often also heavily choreographed, with a December economic meeting usually the venue to formulate such resolutions.
Economists say China needs measures to boost consumption and business confidence, such as tax cuts or government-funded consumption vouchers, but add that unlike previous slowdowns, there is no quick fix. China has hit back at criticism of its response.
“A small number of Western politicians and media amplify and hype up the temporary problems existing in China’s economic recovery,” foreign ministry spokesman Wang Wenbin told media on Wednesday.
“They will eventually be slapped in the face by reality,” he said.
Wang’s comments came after weak economic activity data on Tuesday fuelled concern that China is heading for a deeper, longer slowdown.
The government has also suspended publishing data on youth unemployment, which has hit record highs in what analysts say is partly a symptom of regulatory crackdowns on big employers in the technology, education, real estate and finance sectors.