China Can’t Talk Its Way Out of Slowing Growth
If imitation really is the greatest form of flattery, Shinzo Abe should be thrilled the Chinese are copying his “Abenomics” strategy to excite investors. The rest of the world shouldn’t be.
China isn’t cribbing the Japanese prime minister’s actual blueprint, but his formula of spin and hype that has convinced the world something that doesn’t yet exist is real. The key to a great ad campaign is attracting customers and keeping them, something Abe has done with a brilliance that could teach the Edelman public-relations firm a thing or two.
Abe’s campaign has gone as follows. Introduce a three-part revival plan. Then, roll out the first two segments, the easy ones, right away with great fanfare and to spectacular effect. Abe’s huge monetary and fiscal stimulus did just that, driving equities higher and foreign investors wild. Finally, use that euphoria as a smoke screen to delay the third part, the really hard one that involves controversial steps to deregulate the economy and take on a bewildering number of vested interests.
Eyeing the Nikkei 225 Stock Average’s 38 percent surge this year, it’s easy to forget that Abe hasn’t implemented a single structural change. Ten months into his premiership, has Abe lowered any trade barriers? No. Loosened labor markets? Nope. Increased female labor participation? Hardly. Encouraged private investment, improved corporate governance, liberalized energy markets or tweaked taxes to empower entrepreneurship? Sadly not. Yet investment banks and the news media treat Abenomics as if it’s already generating the self-reinforcing recovery that’s eluded Japan for decades.
Enter Li Keqiang, the Chinese premier facing the most daunting economic reform challenge since the days of Deng Xiaoping. Li must reduce the role of state-owned enterprises, modernize the financial and fiscal systems, overhaul land and household registration rules, reduce the economy’s reliance on exports and cap pollution so that China’s 1.3 billion people don’t choke on their economic success. Getting any of these reforms past corrupt Communist Party bigwigs profiting from the status quo requires a level of political will that neither Li nor President Xi Jinping has so far displayed.
And so, Li and Xi are pulling an Abe. Both talk about their “comprehensive reforms” ad nauseam, so much so that economists and investors have come to believe something is actually going on. Just like Abenomics, China’s new leaders bamboozled the masses with a pair of grand gestures -- neither of which worked as intended -- to deflect attention from the third. The first was a credit clampdown in June; the second was the proclamation that a brake was being applied to growth in the name of preventing the economy from overheating.
Closing the credit spigot traumatized markets so much that officials backed off. There’s loads of credit being extended around the nation today that will go bad when China experiences trouble, as every industrializing nation invariably does. The broadest measure of money supply, or M2, has exceeded the official goal of 13 percent every month this year, rising at a 14.2 percent rate in September. Some clampdown.
China’s growth, meanwhile, isn’t slowing to 7 percent from the average 10.5 percent average pace of the last 10 years by design. The economic model that once worked so brilliantly has run out of steam. China isn’t promoting slower growth -- it’s stuck with it.
Yet China has managed to conflate these two dynamics with the economic upgrades that are key to the nation’s stability. Worse, Li and Xi are still maddeningly vague about what they have planned for their economy. Consider this comment by Xi last week, carried by the official Xinhua News Agency: “We must properly handle the relations between reform, development and stability, and with greater political courage and wisdom, further open our minds, unleash and develop social productivity, and enhance the creative forces of the society.”
What does that even mean? It’s almost seems as if Xi was playing his own game of buzzword bingo, ticking off code words that tested well with some focus group to provide the illusion that bold and smart changes are afoot. Buzzwords and phrases such “reform” and “stability” and “develop social productivity” sound good to hopeful executives and investors, but seem meant to avoid specificity.
So pardon me if I don’t get excited about Politburo member Yu Zhengsheng pledging that “unprecedented” change will emerge from next month’s Communist Party plenum. Forgive me if I don’t buy into what’s increasingly being called “Likonomics,” which is more of a marketing slogan than a credible plan. Game-changing reforms take years to implement in any economy, never mind one as large and imbalanced as China’s. Yet Li and Xi, just like Abe, are spending almost all their time talking when they need to be engineering major changes.
No industrializing economy has ever avoided a crash of some kind, and neither will China. The more Beijing puts empty sloganeering ahead of retooling its economy, the more it tries to delay its day of reckoning, the bigger it will be. And all the spin in the world can’t save China from that reality.
(William Pesek is a Bloomberg View columnist.)
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