Pressure grows on Chinese Premier Li Keqiang to deliver on economic reforms
Premier Li Keqiang's statement at the recent World Economic Forum that China is the source of global economic growth, and not a risk to it, made a sound bite that cut through jargon and analysis. But uncertainties exposed by the botched US$200 billion stock market rescue and devaluation of the yuan remain.
Because repercussions continue to roil markets, the government took administrative measures, such as alerting banks to monitor foreign exchange transactions in an effort to rein in currency speculation. However, the government's show of concern to stabilise the market sends mixed signals. Contrary to Li's fresh commitment to reforms to solve structural problems hindering healthy economic growth, the government has put on hold measures it had promised to implement to serve this purpose. For example, one would have ended bureaucratic interference with initial public offerings, which are subject to regulatory approval, including even pricing. A plan discussed since early this year requires only registration of a proposed IPO before going ahead. In the real estate sector, moves to liberalise administration controls and introduce property tax have been put on hold.
Such procrastination perpetuates inherent problems that are at odds with Li's pledge of support for entrepreneurship and innovation. To be sure, Li tried to reassure investors that reform and growth remained on track and said the authorities would not resort to stimulus such as quantitative easing - a solution that ultimately would become part of the problem of misallocation of resources. The signal that the leadership will not give up on the long road to real reform is welcome. Beijing certainly has the financial resources to put out any fires along the way.
But Li needs to do more. Talking is all well and good. Beijing's crisis management in an endeavour to engineer a soft landing has exacerbated uncertainty. To put the economy on a sustainable, healthy growth track the government must press on with the very reforms it has put off.
There is a need for the leadership to show that the pledge to tackle economic reform is not just empty talk. At a time questions are being raised about whether China has the crisis management skills commensurate with its economic clout, the premier is under a lot of pressure to take responsibility for what has gone wrong. He needs to show confidence in engineering the conditions for sustainable growth. Inflation data for August, year on year, was not enough to kill off the risk of deflation.