The stock market has hit a 22-month low and real estate is showing signs of weakness. Export-oriented manufacturing is struggling with both reduced demand and rising operating costs. With industrial output expanding at its slowest rate in six years, there is much talk of job losses and potential unrest in certain sectors.
What with all this bad news, we could be forgiven for thinking that China is falling apart. But of course it is not.
China’s economy is not immune to escalating problems elsewhere in the world, but it is not about to be consumed by them. Beijing has taken measures to ease some of the pain – for example, cutting lending rates for the first time in six years – but it is equally important that the government manages expectations.
The simple truth is that the Chinese have had it too good for too long – at least from a macroeconomic perspective. They have forgotten that markets go up and down, and that this is no bad thing.
For example, a bout of enforced consolidation may be beneficial to the long-term health of a luxury property market that has in recent years distorted the logic of supply and demand. And no matter how loud corporate executives or individual investors howl, the last thing the government should do is bail them out.
It is in Beijing’s interests that people understand the full implications of the economy’s recent struggles – so they know how to manage their risk when the cycle comes around again.
Sadly, China’s policymakers may have opted for the opposite approach. News emerged in early September that the Communist Party’s publicity bureau had instructed financial websites against writing negative news about the slumping stock markets.
Not only does this misinform individual investors who rely on the media to make informed decisions, it also undermines the government’s credibility with investors smart enough to know that the stock markets are in the tank.
Transparency on its own won’t cure the economy’s ills, but one can hardly imagine China righting the ship in any meaningful way without it.
