As the market drifts back to the reality that the so-called Chinese stimulus is more of a public relations stimulus than an economic one, analysts have begun to wonder why Beijing is not doing more to help China’s morbid economy.
However, there remains a predicate question for those demanding activity for the sake of activity: Does Beijing even understand its economic challenges and how to address them?
Though censorship issues in China are well known, the limitations on basic information have a much more pernicious effect than straight state control. The practice extends to all types of information and data throughout China. The late former Premier Li Keqiang famously noted that he did not trust GDP, but rather looked at railway cargo, electricity consumption, and bank loans. With the National Bureau of Statistics closing access to many datasets and many obvious flaws in the data—unless Chinese bureaucrats maintain a real second set of national data—it would seem reasonable to question whether the Chinese Communist Party (CCP) knows what is happening in the economy.
This fundamental problem appears in other ways and stems from the conundrum that the demand for information does not disappear. It merely evolves to confront the limitations of dissemination. CCP cadres do not want to be fired for bad performance, so they filter information upward. As data get increasingly filtered to the highest levels, what remains are only the rosiest of reports that tell the top officials everything is fine. Between the problem of low-quality data and self-interested filtering of information, even the casual observer could wonder whether the CCP machinery grasps the country’s economic difficulties.
Beyond the empirical questions about the quality of data and information flows stemming from state control, there is a very real epistemological problem: Even if Chinese policymakers had perfect information, how would they respond to problems? Leaving aside politics, do Chinese policymakers exist in an institutional framework in which they create novel solutions to problems?
A striking characteristic of Chinese economic policymaking is the total lack of creativity. Much of the economic data plot as little more than a straight line. Policymakers’ constant response and analysts’ calls are to boost lending to stimulate growth.
There are two specific problems with this response. First, like a doctor prescribing the same remedy regardless of the malady, economic policy in China suffers from a decided lack of creativity and targeting. It rolls out the same responses to every problem. Second, the responses do not solve the problem and, in many ways, worsen the fundamental problem.
The leadership’s response is to boost lending and investment in infrastructure and manufacturing for an economy suffering from oversupply and excess debt. This is just pushing funds into sectors that are already some of the major problems causing pain.
The Chinese economic policy system has seemed paralyzed over the past couple of years as China has faced bank collapses, rapidly slowing economic growth, and tepid consumer demand. Rather than new attempts to solve the deep structural problems, action and repetition of previously failed policies dominate the response. This might be the problem itself.
If you believe that China is suffering through cyclical problems like a post-COVID-19 drop in demand, then it might be reasonable to seek short-term fiscal approaches to solve this problem. However, if the problem is structural in nature—if China’s population has reached a tipping point and will now decline rapidly for the foreseeable future—then the policy response will be very different. To date, Chinese policymakers are acting as if they view China’s problem as cyclical in nature rather than structural.
With CCP leader Xi Jinping touting China’s great rejuvenation, it might be dangerous for one’s career to promote the idea that there are deep structural economic problems in China rather than a passing cyclical slowdown. However, most evidence points to longer-lasting structural issues that China’s technocrats seem unwilling to acknowledge or construct policy to confront.
Lest we think this is speculative, we should ask ourselves why a country supposedly growing at 5.3 percent in the first quarter and 4.7 percent in the second quarter of 2024 even needs fiscal stimulus. This leads to the question of how much even China knows about its economic problems.
