Trade War

Newsletter 229 - September 29, 2024

Welcome to the 229th edition of Trade War.

China pulls the stimulus trigger as officials wake up to gravity of economic slowdown. Series of sweeping measures show Beijing means business and some start calling it a “bazooka” stimulus.

A 24-point guideline to boost weak labor market is released. China edges away from worries about Xi’s “welfarism” and announces cash handout to China’s poorest on cusp of October 1 national holiday. And LVMH owner Bernard Arnault’s fortune grows by $17 billion as Chinese stocks surge.

Calvin Klein parent could be added to Beijing’s “unreliable entities” list for trying to avoid using Xinjiang cotton. And a senior Chinese economist is detained for criticizing Xi’s economic policies in private chat group.

Notable/In depth ~

• “It is hard to recall a more striking disconnect between the Chinese people and their modern leaders,” writes Claremont McKenna College professor Minxin Pei

• “The Chinese market has become increasingly uninvestable,” says Michael Kovrig, a former Canadian diplomat who was detained in China for three years

• China climbs one spot to 11th most innovative economy, in this year’s Global Innovation Index

What a difference a week makes..

In the last edition of Trade War I wrote how Beijing’s decision to sit on the sidelines following the recent U.S. rate cuts, showed Chinese officials were hanging tough on efforts to push towards economic transition, sluggish growth be damned.

“As demonstrated by the reluctance in cutting rates, Beijing seems more concerned today with trying to transition China’s economy to what Xi Jinping likes to call ‘high-quality development’ and ‘new quality productive forces,’ and boosting advanced manufacturing—not reinvigorating the old economic drivers of growth like real estate nor finding ways to really unleash the spending power of Chinese consumers,” I wrote in Trade War last week.

Well, now maybe it’s time to eat my words, following the rapid-fire announcements of growth-boosting measures that many are calling a “bazooka” stimulus.

Last week I also said the following to Singapore’s Channel News Asia, however, reflecting my view that a recent change in language from Xi Jinping hinted that changes could be afoot (Xi dropped the word “resolutely” from a call exhorting local officials to meet national economic goals).

“Given how unremittingly bad China’s economy has been of late . . . I do think that Mr Xi’s change of phrase must be understood as important,” I wrote in response to a query from the Singaporean media company. “At the very least, he is signaling to provincial authorities that reaching the growth targets set for the year will be a struggle.”

So what does the abrupt about-face mean? First, it is clear that Xi finally recognizes the severity of the economic crisis and has ordered officials to take action to respond to it.

What it doesn’t mean, however, is that China’s leader is ready to abandon his state-heavy, investment-led approach to economic management. The effort to build an economy focused on the manufacturing of high-tech products, a goal that has been to the detriment of the China consumer, private companies and entrepreneurs, will continue to be the paramount aim.

China gets serious about stimulus

China has pulled the stimulus trigger and it all started with a hastily arranged press conference by the People’s Bank of China (PBOC).