Playing the strong, silent type only fuels anxiety about China’s economy

(Originally published Sept. 11 in “What in the World“) Chinese officials are too scared of President Xi Jinping to take meaningful action against the country’s economic slowdown, according to the latest from The Wall Street Journal.

The article is part of a running narrative that, like “The Crown,” is based on real events involving real people, none of whom were actually involved in crafting it. This one is about how China is a victim of strongman politics that have killed off the animal spirits in the private sector. Instead of just quoting foreign economists like most of their competitors, the Journal’s reporters cite “people” familiar with the matter.

What’s the matter? That “officials in charge of day-to-day economic affairs have been holding increasingly urgent meetings in recent months to discuss ways to fix China’s economy,” but can’t roll out major stimulus because they “don’t have sufficient authority to do so, with economic decision-making increasingly controlled by Xi himself.”

These unnamed “people” undoubtedly include the same foreign economists and Chinese academics who, unlike Western journalists, occasionally do get to talk and meet with living, breathing bureaucrats. We already knew they’ve been having urgent meetings. The China Securities and Regulatory Commission held one in late-August with a handful of global asset managers to talk up the country’s prospects.

The Journal’s story highlights another one of China’s problems: it hasn’t cultivated any access in the American media to steer its own narrative. Instead, it has shut the Western media off almost completely and bullied or censored everyone else—even China’s chatbots—into keeping their mouths shut. Anyone who’s dealt with the media can sympathize. But as a PR strategy, it’s nuts.

China has thus allowed its economic narrative to be split between its own fantastic, cheer-leading state media (“Everything is A-OK!”) and a foreign echo chamber that’s working with a diminishing amount of dubious data, theory, conjecture, and rumor. Keeping a lid on information this way might help prevent contagion in a crisis. But it can’t help restore confidence.

And Xi? No one knows what he thinks. Apparently, he isn’t as concerned about what Western reporters think about his economic stewardship as they might like. He skipped the Group of 20 Summit in Delhi last week in favor of touring flood-ravaged Heilongjiang province, which prompted a flurry of tea-leaf reading about how he might have wanted to snub India. So unless Xi lets China’s equivalent of Bob Woodward start shadowing him around Zhongnanhai, we probably never will. But to economists, his options now seem dangerously limited.

Investment is curtailed by a weak outlook and rising state intervention, not to mention overcapacity in property and infrastructure. Technology, “green” products like electric vehicles and renewable energy remain possibly productive investments, but are already pretty crowded, too. Consumption? Consumers are smarting from the Covid lockdowns, rising youth unemployment, falling property prices and looming deflation. Combined, these factors have made them so pessimistic they’re saving up to pay down debt and won’t spend.

And exports? Weak. Especially as Washington encourages U.S. companies to shift supply chains out of China and build up production in other regional rivals, like Vietnam. Joe Biden followed his trip to the G20 summit with a stopover in Hanoi to cozy up to a different group of Communists, promising to help build up Vietnam’s semiconductor industry and promote bilateral trade. (It was Biden’s first-ever trip to Vietnam. Biden didn’t serve in Vietnam, having never joined the military and having received draft deferments in the 1960s when he was in college and law school.)

That leaves government spending. China’s city and provincial governments are already up to their eyeballs in debt, so they can’t afford to splash out on any lofty green ambitions. So the proverbial yuan stops at the desk of Mr. “Eat Bitterness” himself. The Journal’s piece echoes the markets’ fear that Xi’s happy to let it all burn, or at least develop a nice crust, preferring socialist-style austerity to any bailout of citizens who got rich inflating the massive debt bubble now imperiling the country.

As the Journal puts it: “The top leader has shown few signs of worry over the outlook despite the gathering gloom and hasn’t seemed interested in backing more stimulus.” Then again, when’s the last time you saw a political leader publicly express anything but confidence in their own economy?

More likely is that Beijing will do just as much as is necessary to stave off complete disaster, without actually fixing the problem.