There’s nothing inherently wrong or bad about policy u-turns but the manner in which they are undertaken by the Chinese authorities leaves a lot to be desired. They also reveal three underlying features of policymaking in the mainland: - the growing influence of ideology and morality, - volatility and fragility of policies, and - the fallacy of Chinese exceptionalism. On the third point, I argue in this piece for The Diplomat that “prior to last week’s announcements, (the) defenders of Chinese exceptionalism had argued that the authorities had little to learn from the experience of the United States during the Global Financial Crisis. They pointed to the high levels of indebtedness and the high inflation that quantitative easing and fiscal stimuli were supposed to have caused. They pontificated about how unlike the fiscally reckless U.S. or economically depressed Europe, China has always maintained a careful balancing act between growth and sustainability. More egregiously, some even said that China was undergoing a “beautiful deleveraging” as part of its transformation into a high-quality, developed economy. According to these defenders, ‘a US$1 trillion property bailout is the last thing China’s economy needs,’ and the falling stock market was a necessary and even healthy adjustment as China pivoted away from property investments and financial speculation to ‘new quality productive forces’ (party speak for advanced manufacturing). In light of last week’s announcements, intellectual integrity requires these defenders of Chinese exceptionalism to criticize the PBOC for using debt and monetary stimulus to boost asset prices and reflate the economy. But as with the defenders of zero-COVID, these monetary and fiscal hawks are more likely to slink away. Alternatively, they may try to characterize the stimulus as being a prudent, carefully calibrated, and well-designed response that does not detract from the path of high-quality development. Clearly, these defenders of Chinese exceptionalism do not let facts get in the way of their good story.”
Joseph Wang
1w
No. You are missing something important. If you had dumped money into the Chinese economy in 2023, it would have just gone into Evergrande and Country Garden and pushed up the real estate bubble. It was necessary for the Chinese government to stomp on the real estate bubble and move the economy into "new productive forces" and *then* you put in the credit. Think of a person that is morbidly obese. If you just feed him cheesecake, then they are going to have a heart attack and die. So you put him on a diet and exercise regime. After 2 years, he loses 200 pounds. At that point, you can give a "cheat day" or let him eat some more cheese cake, as long as he keeps his weight down. What you are saying is that you are being "inconsistent", and the answer is that yes I am. You can have your cheesecake after you stick to your diet and exercise and we will watch your weight to make sure that you don't get fat again. The purpose of austerity is not to make people miserable for the sake of being miserable. The purpose of austerity is to put in some short term pain for long term gain. Specifically, the PBC can now put credit into the Chinese economy without triggering inflation.
Joseph Wang
1w
And this a property bailout *is* the last thing that China needs. This is why they did the stimulus *after* Evergrande and Country Garden are dead. There is a huge stack of existing real estate, but you have to get rid of the Ponzi scheme first.
For now, I am just happy that the stock market is up, the question is whether this is the beginnings of something that will keep on going regardless how it began. I think this is going to be tough but it is possible that irrational exuberance takes on a life of its own. This will kick the can down the road.
Alfred Wong
1w
Very informative
Writer and academic
1wIf one looks at the announcements and signals emanating from the highest levels, you’d have to be quite deluded to think that the latest reversal/u-turn of economy policy is the result of a well-sequenced, carefully coordinated series of actions starting with the various regulatory crackdowns to kill the less productive parts of the economy before injecting credit to the new productive sectors. The more likely explanation is that the leadership saw advance numbers of the 3rd quarter and finally realised things were really bad. Bureaucrats then scrambled to put together the stimulus measures announced last week. In behavioural economics, we call the tendency to tell a consistent story motivated reasoning and ex-post rationalization.