Li Keqiang speech leak reflects sensitivity of growth slowdown
The premier has yet to show the public, the market or even his own officials what he's trying to do with the world's second-largest economy
If there was ever any doubt that the mainland would achieve economic growth of 7.5 per cent this year, it should be gone by now.
But not because Premier Li Keqiang has set 7 per cent as the bottom line. What matters, instead, is the way that information was released this week.
It all happened on Tuesday. That morning, several major securities houses did something extraordinary - they published a report based on an "unofficial" 7,500-word transcript of a speech by Li at a meeting with corporate heads and academics in Beijing on July 16.
According to the transcript, Li said he was committed to delivering the 7.5 per cent growth target this year while keeping inflation below 3.5 per cent. He said growth was trending down but had yet to reach the 7 per cent bottom line and therefore his focus would remain long-term, structural reform.
(In other words, if growth heads too close to 7 per cent, he will resort to short-term stimulus despite concern about the long-term damage it might cause.)
Titled "Dust should now settle on Premier Li's growth floor", Bank of America Merrill Lynch's report said: "The transcript of Premier Li's latest talk contains important information and will surely clarify much confusion on the streets."
Mainland-based China International Capital Corp went even further, making detailed buy recommendations on 33 stocks that it believed would benefit from Li's new direction.
Neither said where they got the transcript from. Nobody believes that any of these securities firms would dare pull something from the internet and then write a report without first getting confirmation or a green light from Beijing.
Transcripts of state leaders' speeches at internal meetings don't surface unless there's a purpose to serve. One example is former premier Zhu Rongji telling mainland officials and businessmen in Hong Kong to be more sensitive in handling Hong Kong affairs. That was during his only visit to the city in 2002 when public confidence was heading south.
So why was the transcript leaked?
It's all designed to make an impact on confidence. Four months into power, Li has yet to show the public, the market or even his own officials what he's trying to do with the world's second-largest economy.
The liquidity squeeze that hurt even the big banks last month has just worsened the confusion, and the disappointing economic figures have added to fears.
While foreign economists argued about what exactly the country's growth target or floor was and whether it could be achieved, locals wondered why short-term stimulus measures had not yet been launched.
Li did try to respond. In fact, major economic benchmarks and the philosophy contained in his speech had been reported by state media days before the leak of the transcript.
Communist Party mouthpiece People's Daily carried a report on its website on the day of the July 16 meeting that quoted Li as saying that his job was to maintain a stable economy between the "ceiling" (of low inflation) and the "floor" (of job-securing GDP growth).
If the stock market is a relevant indicator of confidence, the public has found this all too vague to provide any reassurance.
More specifics arrived on July 21 in a commentary by Xinhua. It filled in the numbers - the floor was 7 per cent growth and the ceiling was 3.5 per cent inflation. It said: "We have a high tolerance towards an economic slowdown. However, structural reform cannot come at the expense of economic stability … Economic growth below 7 per cent will not be allowed."
Still, the public didn't get it. Both the mainland and Hong Kong stock markets fell further.
Then, in the very early hours of Tuesday, state-owned newspaper Beijing News carried a report that included extensive quotes from Li at the meeting. The transcript of the speech also began to surface in Hong Kong and research reports were published.
With the transcript of his 25-minute talk published, the premier was telling the world that he knows what he is doing and he is going to achieve it.
Facing powerful interest groups and economic pessimists at home, Li needs not only the understanding but also the cheers of overseas investors for his new philosophy and approach.
Finally, he got it. The Hang Seng Index rose 380 points in the first hour of trading on Tuesday and closed 2.33 per cent higher.
The transcript has received little publicity in the mainland media but the Shanghai and Shenzhen stock markets reacted positively anyway.
Do people seriously think his new approach is going to work? The answer to that doesn't matter. What matters is we have a premier who is not very good at communicating, who cannot tolerate a negative market and who is eager to prove himself to the world.
How can the economy slip - at least data-wise?