Does Slowing April Mean China’s Xi Gets His Desired No Recovery


Zhang Gaolin at a meeting in March. Photo: Xinhua/Zhang Weibing

Zhang Gaolin at a meeting in March. Photo: Xinhua/Zhang Weibing

Zhang Gaoli, the Politburo Standing Committee (PSC) member of the Chinese Communist Party (CCP) in charge of economy, is optimistic and said in a public conference late March, “From the numbers, I expect kai men hong (good start at the beginning of the year) in the first quarter. This year we tackle the difficulties. Next year will be blue sky and gentle water.”

Zhang is obviously happy that his strong loose-credit measures will bring about a U-turn recovery in Chinese economy.

China’s top leader Xi Jinping is, however, unhappy at the debt-fuelled recovery. Unlike Zhang who wants a U-shaped or V-shaped recovery, Xi wants no recovery at all. He wants China’s economic growth curve to be L-shaped, which means that after the sharp drop in growth rate, the growth rate shall remain low for some time so that China can focus on economic structural reform to substitute consumption- and innovation-led growth for debt-fuelled growth and remove overcapacity and excessive debts.

Xi gave a speech on his economic development strategy in January, but the officials in charge of economy including PSC members Premier and Vice Premier Li Keqiang and Zhang Gaoli would not listen and have persisted in seeking debt-fuelled growth.

The split among China’s top leaders over economic development has now been made open after CCP mouthpiece published an interview with an “authoritative person” who criticized Zhang’s approach of economic management without naming him.

That did not seem enough, the interview was soon followed by People’s Daily’s publication of the full text of Xi Jinping’s January speech on economic structural reform.

Some analysts compare the split with the debate on reform being socialist or capitalist in nature when Deng Xiaoping began his economic reform and opening up. Deng told officials to refrain from debates and wait for the results of the reform. It proved that Deng, though the paramount leader, was unable to silence the dissents at that time.

Zhao Ziyang silenced the dissents by closing conservatives’ mouthpiece, Hongqi magazine, but conservatives retaliated by removing Zhao from the post of CCP general secretary. Zhao was removed due to his sympathy with the Tiananmen protesters but according to Zhao’s memoir, the conservatives began their campaign to remove him before Tiananmen Protests, which only helped conservatives remove Zhao.

The situation is different now. Xi, having established his position as the paramount leader, simply told those who disagree not to air their dissents, i.e. no debate is allowed.

In his January speech, Xi told officials not to sing out of tune with the party center and engage in political liberalism. Now, officials have indeed refrained from singing out of tune, but like Zhang Gaoli, they simply do not carry out Xi’s policies of supply-side economic structural reform in the first quarter of this year.

Reuters says in its report today titled “China April economic activity data disappoints, hiking recovery doubts”, “China’s investment, factory output and retail sales all grew more slowly than expected in April, adding to doubts about whether the world’s second-largest economy is stabilizing.”

We are not sure whether the slowdown in April was caused by Xi’s opposition to Zhang Gaoli’s policy. Anyway, Zhang’s speech in March proved that Zhang disregarded Xi’s view and keeps on pursuing debt-fuelled growth. Xi is able to silence dissents but is not able to make officials do what he wants them to do. Zhang may perhaps do what Xi wants for some time but he may resume his efforts to pursue debt-fuelled growth when China’s growth rate is in his opinion too slow.

Reuters says in its report “The government has made reducing the capacity glut one of its top priorities, and has vowed to put “zombie” companies out of business. But economists expect authorities to move slowly to avoid a sharp jump in unemployment.” It seems Xi regards the slowdown and unemployment caused by his economic structural reform as a necessary price to pay, but those in charge of Chinese economy think otherwise.

What shall Xi do? Zhang has to retire in the next CCP congress, but Li Keqiang, the premier, will remain the premier and a PSC member. Xi shall find talents to fill the vacancy left by Zhang and better to find someone to take over the management of economy from Li. Deng Xiaoping appointed Zhu Rongji as vice premier to take over the management of economy from Li Peng, the top conservative who passively resisted Deng’s reform.

Perhaps, Xi has the excessive energy to do the jobs of both president and premier like Zhu Yuanzhang, the founding emperor of the Ming Dynasty who simply abolished the post of prime minister in his official system to take everything into his hands. However, Chinese population has grown much larger and modern Chinese economy is much more complicated than that in Zhu Yuanzhang’s time. I doubt whether Xi has the energy to do both jobs.

Even if he can, will he able to find a talented successor with such energy?

Comment by Chan Kai Yee on Reuters report, full text of which can be viewed below:

China April economic activity data disappoints, hiking recovery doubts

China’s investment, factory output and retail sales all grew more slowly than expected in April, adding to doubts about whether the world’s second-largest economy is stabilizing.

Growth in factory output cooled to 6 percent in April, the National Bureau of Statistics (NBS) said on Saturday, disappointing analysts who expected it to rise 6.5 percent on an annual basis after an increase of 6.8 percent the prior month.

China’s fixed-asset investment growth eased to 10.5 percent year-on-year in the January-April period, missing market expectations of 10.9 percent, and down from the first quarter’s 10.7 percent.

Fixed investment by private firms continued to slow, indicating private businesses remain skeptical of economic prospects. Investment by private firms rose 5.2 percent year-on-year in January-April, down from 5.7 percent growth in the first quarter.

“It appears that all the engines suddenly lost momentum, and growth outlook has turned soft as well,” Zhou Hao, economist at Commerzbank in Singapore, said in a research note.

“At the end of the day, we have acknowledge that China is still struggling.”

Reuters reported on Saturday that China’s banking regulator has sent an urgent notice to banks telling them to clear bottlenecks holding back lending to private firms.

In its data announcement, the statistics bureau said “Because the total amount of private investment is relatively large, its continued slowdown could restrain stable growth, and requires a high degree of attention.”

MARCH DATA SPARKED HOPE

Retail sales growth in April, which captures both private and government purchasing, rose 10.1 percent on an annual basis, slower than expected. Analysts had forecast sales would rise 10.5 percent on an annual basis, the same percentage increase as reported for March.

It was upbeat March data that sparked hopes China’s economy was picking up in a wake of a more than year-long blitz of fiscal, monetary and administrative stimulus measures. A recovering property market has also boosted demand for raw materials, giving a boost to long ailing heavy industries such as steel mills.

But much of the data on April, which included weaker-than-expected exports and imports, plus soft factory activity surveys, continued to underline lingering weakness in the broader economy.

The only bright spot was investment in housing, which grew 9.7 percent in April from a year earlier, according to Reuters calculations, keeping even with March’s pace.

China’s economic growth has cooled to 25-year lows, weighed down by a combination of weak demand at home and abroad, factory overcapacity and increasing amounts of debt.

The government has made reducing the capacity glut one of its top priorities, and has vowed to put “zombie” companies out of business. But economists expect authorities to move slowly to avoid a sharp jump in unemployment.

(Additional reporting by Elias Glenn; Editing by Richard Borsuk)


One Comment on “Does Slowing April Mean China’s Xi Gets His Desired No Recovery”

  1. Steve says:

    At the end of the day, China is still the world’s top banker AAA+ and loaded.

    Like


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