We suggested last week that there were signs of a charm offensive from the Center, aimed particularly at the world at large, the middle class and private enterprise, offsetting perceptions arising from the 20th Party Congress, the sharp about-face on COVID policy and the sense that political purity is taking the lead over economic growth. And this week we have seen a slew of evidence to support this.
Guo Shiqing said the moves to bring the tech giants to heel were basically over, Jack Ma sort of re-emerged with the news that Ant Financial was no longer under his control, the new Foreign Minister Qin Gang made efforts to appear less wolf warrior-like than his predecessor, the borders re-opened to a large but not total extent, and the famous “red lines” created to try to sort out the mess that is China’s property market were re-drawn to give property developers more breathing space. That’s a lot of stuff happening very quickly, and the markets reacted positively.
But the question is how sincere all this is. On signaling to private enterprises, Shaanxi province announced that it was following the example of Mr Xi to appoint 25 top party officials into major private enterprises in the province to provide guidance. On signaling to the world at large, China reacted to virus concerns and testing requirements in many countries concerned about the flood of infected visitors as the borders open by stopping the issuance of many visas for Japanese and South Koreans, and PLA Air Force planes continued to make almost daily sorties into the air space of the Treasure Isle. How the broad masses feel about the sudden shift from mass testings and fear of infection to innoculations and whatever let’s get it over with, is not entirely clear. But it’s likely that people are somewhat confused and punch drunk. What will be the next shift? Is the obvious question.
The economy looks likely to grow at, let’s say, five percent this year compared to the awful performance of 2022. But how to get consumers to shrug off concerns and start spending? The property market is the foundation on which so much is built and the smudging of the red lines means that the basic problems of too much debt and too much overbuilding will likely be further exacerbated. In recent years, the Center has tried a couple of times to sternly implement policies that would reduce local government debt, curb the enthusiasm of the developers for build-build-build and keep the market stable and attractive for buyers. That means forcing the local governments and property developers to be more prudent and restrained, but both are addicted to the build-build-build approach. The disappearance of the red lines, some economists including the guru-like Michael Pettis say, just make the problem all the more difficult to solve. Systemic brick wall shifted a short way down the road? Could be.
Anyway, enjoy the winter charm sunshine.