BEIJING (Reuters) - With China at risk of slipping into prolonged stagnation and a spiraling asset crisis threatening financial stability, concern is growing over why its leaders are slow to revive the world's second-largest economy.
Even in a country known for opaque and protracted decision-making, investors, analysts and diplomats point to signs that Beijing appears hesitant to enact the bold policies needed to support the ailing post-Covid recovery.
It is not only an economic but also a geopolitical problem.
US President Joe Biden - at loggerheads with China over hot-button issues such as Taiwan, the democratic island Beijing claims as its own - last week called China a "ticking time bomb" over its economic ills. "It's not good because when bad people have problems, they do bad things," Biden said.
So why has China's response been so lukewarm?
The view of several China watchers is that President Xi Jinping's focus on national security is limiting and countering economic efforts and scaring away the money Beijing is said to be trying to attract.
"The main problem this year is that the leadership has given vague, lofty instructions to officials to balance economic development and national security," said Christopher Beddor, deputy director of China research at Gavekal Dragonomics.
"If officials aren't sure what management wants them to do, they're likely to delay any action until they get more information. The result is policy paralysis, even at significant cost."
Others say the Communist Party's entrenched hesitancy toward measures that could shift power from the state to the private sector, and a government made up of Xi loyalists, may be stifling political debate and holding back the response.
To be sure, change in China can take time, as evidenced by its insistence on maintaining economically damaging COVID-19 restrictions for much of the past year, even as the rest of the world has opened up.
China has shown timely resolve in the past and comprehensively responded to fears of a growth freeze during the 2008-2009 global financial crisis and fears of capital outflows in 2015.
Major policy change is also often heavily choreographed, with the December economic meeting usually being the place where such resolutions are formulated.
Economists say China needs measures to boost consumption and business confidence, such as tax cuts or government-funded consumption vouchers, but add that unlike previous slowdowns, there is no quick fix.
China hits back at criticism of its response.
"A small number of Western politicians and the media are amplifying and promoting the temporary problems that exist in China's economic recovery," Foreign Ministry spokesman Wang Wenbin told the media on Wednesday.
"Eventually reality hits them in the face," he said.
Wang's comments came after weak economic activity data on Tuesday fueled concerns that China is headed for a deeper and longer slowdown.
'THE PERCEPTION GAP'
The government also suspended the release of data on youth unemployment, which has hit record highs in what analysts say is partly a symptom of regulatory crackdowns on big employers in technology, education, real estate and finance.
Without giving details, the State Council said Thursday it would "optimize" the environment for private firms and make greater efforts to attract foreign investment. The private sector accounts for 60% of gross domestic product and 80% of the city's employment, officials say.
But there is growing dissonance between officials calling for investment and a sweeping crackdown on national security, eroding business confidence, diplomats in China say.
One example was the recent anti-espionage law, accompanied by raids on some foreign consulting firms, which sent waves of anxiety through the foreign business community.
The Commerce Department met with foreign firms in July to say the law provides guarantees for firms operating in China and should not be of concern, according to a diplomat and another source briefed on the meeting. Both declined to be identified.
But the assurance only highlighted a "significant gap in perception" between the government and foreign businesses, the diplomat said. The ministry did not immediately respond to a request for comment.
"What people actually hear is 'we're open to trade, but only on our terms,'" said Lee Smith, a sales representative at Baker Donelson who previously worked at the U.S. Department of Commerce on trade policy affecting trade with China.
There may be deeper reasons why leaders are not rushing to take measures to boost confidence in the private sector, said Xu Chenggang, a scholar at Stanford University's Center for China Economics and Institutions.
"The big fear about the Chinese Communist Party is that it could be overthrown if capitalism and the private economy grow strong enough," Xu said.
Xu said such thinking was conspicuous under Xi Jinping, who has hushed up dissent during his decade in power and consolidated his government with loyalists after securing a precedent-setting third term last year.
A day after this week's dire data, the party's official newspaper published a speech by Xi Jinping in which he warned against Western capitalist economic models. The speech delivered in February did not mention structural imbalances or how to address them.
"We may all have to live with a less vibrant economy for a long time," Xu said.
As one of the largest and most influential economies in the world, China's economy has recently faced a number of challenges that have raised questions about its stability and future prospects. Contrary to expectations, the Chinese government has not rushed to implement aggressive measures to quickly address these issues. This analysis delves into the strategic reasons behind China's cautious approach to addressing its ailing economy and explores the potential consequences of this decision.
Strategic economic planning:
The Chinese leadership has shown a penchant for strategic long-term economic planning. Instead of hasty steps that could bring short-term results, the government seems to be focusing on structural reforms that can bring about sustained and stable growth. This approach is based on lessons learned from previous boom-bust cycles, which emphasized the importance of avoiding impulsive action that could lead to unpredictable consequences.
Debt relief and financial risks:
One of the significant problems facing China is its high level of indebtedness, especially within the corporate sector. Rather than resorting to quick stimulus measures, China appears determined to tackle the problem by introducing gradual deleveraging. The government thus aims to reduce systemic financial risks and ensure a healthier economic ecosystem, even if this means tolerating slower growth in the short term.
Quality over quantity:
China's focus on transitioning from a quantity-based growth model to one focused on quality and innovation underscores its willingness to prioritize sustainable development over rapid expansion. The government's emphasis on modernizing industries, investing in research and development and promoting innovation demonstrates a commitment to creating a more resilient and dynamic economy that can withstand global uncertainties.
External and geopolitical factors:
China's economic decisions are also influenced by external factors, including geopolitical tensions and international trade dynamics. Faced with these challenges, the government could be inclined to tread carefully to avoid exacerbating existing conflicts or making the economy too vulnerable to external pressures.
Social stability and employment:
Maintaining social stability and healthy employment rates are paramount to China's leadership. The rush to drastic economic measures could potentially lead to mass redundancies or economic dislocations, which could have a negative impact on social cohesion. A more measured approach allows the government to manage potential disruptions while pursuing economic improvements.
Global Economic Integration:
China's interconnectedness with the global economy requires a careful approach to economic reform. The government may worry that overly aggressive measures could disrupt global supply chains and affect international investor confidence. China is taking deliberate steps to balance its domestic economic needs with its role in the global economic ecosystem.
China's decision to take its time to fix its ailing economy reflects a deliberate and strategic approach aimed at achieving long-term stability and sustainability. By focusing on structural reforms, managing financial risks, promoting innovation and considering external factors, China's leadership is trying to navigate the complexities of the current economic environment while laying the foundations for a resilient and prosperous future. This prudent strategy underscores China's commitment to a balanced and thoughtful response to its economic challenges
China, an economic powerhouse, has gained global attention for its deliberate and cautious approach to addressing its ailing economy. While many countries rush to implement immediate remedies for economic woes, China's measured response has raised eyebrows. This analysis delves into the strategic rationale behind China's calculated stance and sheds light on the complex interplay of factors that influence its economic decision-making process.
Structural reforms and long-term goals:
China's economic scene is undergoing a profound transformation, from export-led growth to domestic consumption and innovation-led expansion. Chinese authorities recognize the need for sustainable growth and understand that rushing to solve short-term problems can jeopardize their long-term goals. Structural reforms, such as deleveraging and reducing overcapacity in certain sectors, are essential to ensure the stability and resilience of the economy in the future.
Debt Management and Financial Stability:
China's economy has seen a significant accumulation of debt, particularly in its corporate sector. The government's prudent approach focuses on managing debt levels to avert potential financial crises. By prioritizing financial stability, China is trying to strike a balance between promoting growth and preventing excessive risk-taking that could lead to instability.
Quality over quantity:
China's growth trajectory has shifted from high-speed pursuits to a focus on quality and sustainability. The government recognizes the importance of supporting innovation, modernizing industries and improving overall productivity. This approach requires careful planning and targeted interventions that may not bring immediate results, but will contribute to a more robust and efficient economy in the long run.
Global economic uncertainties:
The global economic environment is marked by uncertainties, including trade tensions, geopolitical conflicts and the ongoing impact of the COVID-19 pandemic. China's prudent economic strategy is influenced by a desire to insulate itself from external shocks. By adopting a measured approach, China seeks to mitigate potential vulnerabilities arising from these uncertainties.
Social stability and unemployment concerns:
A rapid overhaul of China's economy could lead to disruptions in various sectors, which could lead to unemployment and social instability. The government tries to avoid such disruptions that could have wider social consequences. This consideration underscores the importance of carefully managing economic reforms to ensure a smooth transition.
Balancing environmental sustainability:
China's commitment to environmental sustainability is increasingly important. Solving environmental problems requires careful planning, technological investment and regulatory adjustments. A hasty economic fix could undermine progress made in this area, requiring a balanced approach that takes into account both economic and environmental factors.
Global Economic Leadership:
China's cautious economic approach is consistent with its aspirations for global economic supremacy. The rush to fix its economy could be interpreted as reactive rather than visionary. By adopting a moderate approach, China wants to demonstrate its ability to manage complex economic challenges while maintaining stability and growth.
China's thoughtful and cautious approach to its ailing economy reflects a multifaceted strategy that takes into account long-term goals, financial stability, the shift to quality growth, global uncertainties, social considerations, environmental sustainability, and aspirations for leadership in the global economy. This comprehensive view underscores China's determination to tackle its economic challenges in a systematic way, prioritizing sustainable and balanced growth over short-term solutions. As the global economic landscape evolves, China's approach will likely continue to shape its economic trajectory and its role on the world stage.
China, a global economic powerhouse, has gained international attention for its thoughtful and measured response to its economic challenges. While some observers might question the seemingly slow pace of fixing the ailing economy, closer analysis reveals that China's approach is rooted in a well-calculated strategy aimed at ensuring sustainable long-term growth. In this comprehensive analysis, we delve into the key factors behind China's cautious stance and discuss the potential benefits it offers.
Balancing short-term fixes with long-term sustainability:
China's leadership recognizes the importance of finding a balance between addressing immediate economic problems and creating a solid foundation for future growth. Rather than resorting to quick fixes that could lead to instability, the country is focusing on implementing reforms that will lay the foundations for stable and sustainable development. This approach minimizes the risk of economic shocks and promotes resilience to global uncertainty.
Lessons from past experiences:
China's economic history provides valuable lessons. Rapid economic expansion in the past has led to challenges such as excessive indebtedness, environmental degradation and income inequality. By taking a prudent course, China is trying to avoid repeating past mistakes and ensure that its growth is inclusive, environmentally responsible and equitable.
Prioritizing structural reforms:
China realizes that getting its economic structure in order is paramount to long-term success. The focus on structural reforms, such as the transition from an export-based economy to a consumption-based economy, represents a strategic step to reduce dependence on external factors. This gradual transition minimizes potential disruption and supports sustainable domestic demand.
Reducing financial risks:
China recognizes the importance of financial stability and is taking prudent steps to address its debt levels and mitigate potential risks. By managing the accumulation of debt and implementing a prudent monetary policy, China is trying to avoid a sudden downturn that could affect its economic stability.
Use of technological innovations:
China's thoughtful approach is also evident in its emphasis on technological innovation and research. By promoting a favorable environment for innovation, China seeks to increase its economic competitiveness on a global scale. This strategic investment in technology contributes to long-term growth prospects and reduces dependence on traditional industries.
Global economic uncertainties:
China's prudent economic strategy is affected by the volatile global economic environment. Trade tensions, geopolitical shifts and ongoing pandemics underscore the need for a methodical approach to protecting its economic interests. By gradually addressing its domestic challenges, China can position itself to more effectively manage external uncertainties.
China's decision to take its time in fixing its ailing economy is essentially a testament to its commitment to sustainable and resilient growth. By adopting structural reforms, learning from historical lessons and managing financial risks, China is striving to create a robust economic framework that can withstand challenges and seize opportunities. While this deliberate approach may seem gradual, it puts China on a trajectory toward a more inclusive, innovative, and stable economic future. As the world watches, China's thoughtful strategy may well prove to be a blueprint for sustained economic success.
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