• Sat
  • Jul 26, 2014
  • Updated: 12:11am
NewsChina

A new word invented to describe China's economic reforms: 'Likonomics'

'Likonomics' refers to the plans of Premier Li Keqiang to avoid government stimuli, lower credit, and initialise structural change

PUBLISHED : Wednesday, 03 July, 2013, 2:50pm
UPDATED : Friday, 05 July, 2013, 3:06pm

Last century, Margaret Thatcher gave the world ‘Thatcherism’ and her counterpart – and good friend – across the Atlantic brought us ‘Reaganomics’.

More recently, Japanese Prime Minister Shinzo Abe’s policies to revive the economy after two decades of stagnation inspired ‘Abenomics’ and now Chinese Premier Li Keqiang has stepped up with ‘Likonomics’.

The origins of the term – and the correct spelling – are vague, but Richard Harris, CEO of Hong Kong-based Port Shelter Investment Management originally referred to 'Lionomics' in March. Post columnist Tom Holland also referred to ‘Liconomics’ last week, and a few days later Barclays Capital produced its own version, spelled 'Likonomics'.

Three Barclays Capital economists wrote that Likonomics was “exactly what China needs to put its economy on a sustainable path, which we estimate is around 6 per cent to 8 per cent annual growth for the next 10 years”.

Thatcherism aimed at lowering inflation, reducing the size of government, and privatisation, freeing up markets, particularly the labour market. Ronald Reagan aimed to slow the growth of government spending, cut taxes, slash red tape and control the money supply.

They stand in stark contrast to the policies espoused by Japan’s Abe, who wants to lift inflation to at least two per cent, weaken the yen and print money and boost public investment.

Defining Likonomics is more challenging.

Barclays Capital believes that the three pillars of Li’s economic policies are straightforward: no stimulus, de-leveraging and structural reform.

Li wants to lessen government directed investment, lower China’s credit ratio and loosen controls over utility prices and interest rates.

Unsurprisingly, China Daily praised Likonomics, saying in an editorial that it was “in a nutshell, trading the economy’s short-term pain for long-term gain.”

If Likonomics succeeds, “it may be seen as a mini-crisis on a controlled scale, engineered by the government’s visible hand, to divert from the likelihood of a more serious crisis that would otherwise be inevitable if things are left entirely to be decided by the invisible hand of market forces,” the newspaper said. “China’s visible hand is likely to work as regulation within the market, instead of against the market.” 

Others were more cynical. In a blog, a journalist for The Economist reported that Beijing’s aversion to government-sponsored surpluses and overaggressive deleveraging might do more harm than good.

“Too many economists in China now think that stimulus is autonomous with reform, as if microeconomic evolution requires macroeconomic pain,” the Economist blog said. “It doesn’t… [China] still runs a sizeable current-account surplus, which shows that it spends less than it earns…Its domestic demand falls short of its supply…and consumer price inflation remains low, which shows that domestic and foreign demand combined are not putting undue pressure on productive resources. China does not need to spend less. It just needs to spend differently.”

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