The Chinese economy is struggling. And it’s not just the Chinese who are wondering what their government intends to do to correct the situation.
The barrel of oil lost more than 5% of its value on Tuesday despite extreme tension in the Middle East and the threat of an Israeli attack on Iranian oil installations. It was that in another part of the world, a press conference had just ended and it had been disappointing.
It must be said that we came to hear Zheng Shanjie, president of the powerful Chinese planning agency, the National Development and Reform Commission. That everyone was there to learn more about the recovery plan that Beijing finally seemed ready to deploy to revive the world’s second largest economy. But instead, we were largely treated to platitudes, reported Agence France-Presse (AFP).
The Chinese economy is not doing very well. Accustomed to remaining at almost insolent levels, its real growth rate was still at least 6% per year before the COVID-19 pandemic struck. However, everything indicated, last month, according to the OECD, that it would narrowly miss the more modest target of 5%, set by Beijing for this year, and that it would have to be content with 4.5% per year. next. The Guardian reported, for example, on Wednesday that the unemployment rate among young people is close to 19% in the city.
A dragon out of breath
It is of course normal that an economy that has risen to second place in the world cannot maintain an average growth rate of 10% forever, but it is more than that. The country cannot rely on its main engines of economic growth. The real estate sector has been in a slump since the bursting of a speculative bubble. Infrastructure investments are weighed down by local government debt. Exports are taking the hit from the global economic slowdown and the rise in protectionism.
For at least 20 years, it has been said that China needs to get closer to a normal developed economy, that is to say that it relies at least 70% on domestic consumption, whereas it remains stuck at just over 50%. But Chinese consumers do not seem ready to occupy a larger place in the economy.
Often poorly paid, taxed more heavily than the rich and poorly protected by a narrow social safety net, the average Chinese was saving, at last count, almost a third of his disposable income. Slowing economic growth, collapsing property values and a rapidly aging population are doing nothing to reduce this precautionary saving, a World Bank economist noted this week cited by the Financial Times.
The Chinese authorities have shown, particularly during the financial crisis of 2008-2009, that they could deploy strong means of economic recovery when the situation required it. But now, it is said that President Xi Jinping does not like the idea of directly helping households or businesses in difficulty because he does not want to develop an attitude of welfare recipients among them.
Hope and disappointment
Then, two weeks ago, we saw what looked like a complete turnaround. To stimulate consumption and investment, the Chinese central bank announced a cut in interest rates and a relaxation of bank lending rules. To revitalize the real estate market, we have also, with several large cities, put in place mechanisms favoring the purchase of unsold houses to turn them, in certain cases, into affordable housing. To restore some energy to the stock markets, we also offered financing to companies that would like to buy back their own shares.
Three days later, Premier Li Qiang said a series of policy measures “aimed at stabilizing the economy and promoting development will be considered.” A persistent rumor of an economic recovery plan began to circulate. It was notably a question of reducing the debt of local governments, recapitalizing the banks and encouraging household consumption for a total amount of US$142 billion to US$427 billion, perhaps even US$1,400 billion, i.e. equivalent of 8% of the Chinese economy, reported the Wall Street Journal.
Analysts were already talking about a “bazooka” recovery plan, the broad outlines of which could have been clarified at Zheng Shanjie’s press conference this Tuesday. The Chinese stock markets did not wait to take off and gain more than 20% in a few days. However, part of these gains were already erased on Wednesday following the disappointment of the day before. We were hoping for a bazooka, but “it turned out to be more of a plastic gun,” an analyst told AFP.
See you next time
It is possible that the long-awaited good news will come this Saturday, during another press conference, but this time from the Minister of Finance, noted this week the Financial Times. Or at the next meeting of the Standing Committee of the National People’s Congress scheduled for the end of the month. But it is also possible that Beijing will wait even longer to keep as much ammunition as possible in its pocket in order to be able to react to a possible return of Donald Trump to the White House and an intensification of the economic war between the two countries.
This is the problem with political regimes like China’s, observed this week The World. “Because real decision-making capacity is concentrated in the hands of a single person, power gives the feeling of remaining deaf to the ills that affect society for a long time. Then, suddenly, when he finally pays attention, all state agencies are summoned to get started and make their support measures public, without necessarily having been really prepared. »
One thing is certain, a simple recovery plan, whether bazooka or otherwise, will not be enough to overcome China’s fundamental economic problems, several analysts have noted in recent weeks. To do this, it will be necessary to tackle more seriously its difficult transition towards a more normal developed economy.