A government mouthpiece article cools investor optimism
HONG KONG–An anonymous and pungent criticism of China’s credit-fueled economic growth is triggering anxiety that dissension has broken out at the pinnacle of Chinese politics. The opaque maneuverings at the Chinese Communist Party’s Zhongnanhai HQ in Beijing have done nothing to soothe investors, forcing them to wait with bated breath until a clearer picture emerges.
At the center of the alleged feud is a May 9 article on the front page of the flagship People’s Daily. It cited an “authoritative person” in an unusual commentary that cautioned against the use of generous credit lines to fuel China’s economy. The mysterious source warned that mounting local and corporate debt in China is “at the verge of spiraling out of control” and can ricochet to harm the Chinese economy. The source argued that structural reform, rather than buoying short-term economic performance, is the better prescription for healing China’s ailing economy.
It’s widely held that an ongoing stimulus package with credit taps at its core is Chinese PM Li Keqiang’s signature policy. If this assumption is correct, the “authoritative person” quoted in the People’s Daily piece is practically repudiating Li’s economic platform. This, in turn, is fanning speculation that a rift over economic policy has taken place among China’s top leaders.
Further lending weight to the rumor, the People’s Daily ran another report on May 10, citing a speech made by President Xi Jinping last December. Xi’s words echoed the above rebuke on expanding China’s debt burden, albeit in much more diplomatic rhetoric.
The anonymous source also gave a dim outlook for the Chinese economy in years to come, flatly rebuffing a claims by other Chinese officials that the Chinese economy is “having a tremendous start” this year. CCP watchers are astounded by the bluntness of the the source’s criticism since the “having a tremendous start” remark under question was made in March by Vice Premier Zhang Gaoli, who is also a member of the all-powerful Politburo Standing Committee.
School buddy politics?
Many are guessing that the “authoritative person” quoted in the People’s Daily is Xi’s close advisor Liu He, who received a Master’s degree in Public Administration from Harvard University in the 1980s and was Xi’s school mate in the 1960s. Xi has said publicly that“he (Liu) is very important to me.”
Compounding the speculation is the fact that comments on the Chinese economy by a mysterious “authoritative person” have been published in People’s Daily no less than three times in the last 12 months (including the May 9 piece). China watchers, nonetheless, are still trying to figure out what these signals mean in political and economic terms.
Theories about the the People’s Daily commentaries abound. But none can be independently confirmed for accuracy.
The “power struggle” theory is one of the most popular. It holds that Xi and Premier Li agree on major structural measures such as deleveraging and destocking to revive the Chinese economy. But it questions whether they have a consensus on other key economic issue.
Debt bomb worries
Among the controversies noted is Li’s “debt-for-equity” swaps initiative proposal. The proposal is aimed at preventing nonperforming loans from piling up. The 1,600-word People’s Daily article on May 9 says such debt-for-equity swaps, mandated by the state, will make it hard for bad borrowers to learn from their mistakes.
However, some pundits insist that such assertions must come with an asterisk. They are unconvinced that airing such differences of opinion in public is in line with Xi’s best interests. They note that breaking ranks in public, especially at the top echelon, will stoke questions about Xi’s leadership ability.
Other analysts believe that the ongoing drama reflects disparity at the policy implementation level instead of a policy disagreement. They note that the source articles were published after a keynote Politburo meeting on April 29, which reiterates the importance of the “healthy development of stock market” in China. Yet even this simple statement can be subject to different interpretations by officials. It can also result in a huge discrepancy in execution.
China State Bureau of Statistics, for example, has expressed an optimistic view of the nation’s economy. Their experts have predicted a “U-shape rebound.” These analysts say the bullish assessment has prompted the “authoritative person” to publicly rebuke the view. Instead, the source is telling the Chinese people to brace for a gloomy “L-shape” projection for the economy.
By these lights, the People’s Daily commentary has a two-pronged approach in dealing with the problem’s of China’s economy. The first is to fire a warning shot across the bow of officials who fail to adhere to Xi’s official line. The second is to exercise early-stage expectation management about the future direction of China’s economy with the general public.
The aforementioned theory needs further scrutiny before its accuracy can be established. It’s Achilles heel is that Chinese state agencies very rarely misinterpret edicts from on high. You might even say it’s impossible.
The all-powerful Politburo should also have reached a final verdict or consensus on the issue if it is properly functioning. After all of the theories and factors are considered, an ongoing power struggle seems to be the likeliest or most convenient explanation for what’s behind the People’s Daily commentaries.
Fong Tak Ho is a longtime Hong Kong journalist who has worked for the Hong Kong Standard, the South China Morning Post, Ming Pao, Asia Times Online and other publications.