Talk about stability in China is empty, if Beijing can’t deliver on reform
- Cary Huang says Beijing’s proposal to stabilise trade and markets only betrays its lack of confidence in the economic outlook. To ensure stability, it should restore trust by committing to market reform and political restructuring
For China in 2019, “stability” is the catchword, as well as the government’s main policy goal. And the key to achieving this goal is confidence.
However, Beijing’s recent proposal to ensure six “stabilities” not only reflects its anxiety about instability of the world’s second-largest economy, but also shows its lack of confidence in the economic outlook.
Indeed, even setting aside the worst-case scenario of a full-blown trade war with the United States, forecasters agree that the Chinese economy will this year grow at its slowest pace since 1990, when Western nations imposed sanctions on China in the aftermath of the Tiananmen crackdown.
Actually, the growth rate of the Chinese economy has been steadily slowing over the past decade. Such a gradual slowdown is normal, even healthy, as the world’s largest developing country transitions from an export-oriented, manufacturing economy to one led by services and private consumption.
In such circumstances, confidence is critical for the creation of stability in employment, financial markets, foreign trade, investment, foreign investment and market expectations. However, China’s tricky economic transition has been complicated by unprecedented external and internal challenges, and business confidence might well have plunged to its lowest level.
Externally, US President Donald Trump’s punitive tariffs on Chinese goods for what he claims to be unfair and predatory trade practices have presented the export-oriented Chinese economy with the biggest challenge. An escalating trade war will drag down economic growth, reducing Chinese exports, investment, employment and consumption, while undermining expectations and financial markets.
Despite some optimism about the ongoing trade negotiations, most economists expect the row to continue, given the wide philosophical gap between the world’s leading market economy and the biggest state-directed economy.
Even more worrisome than the trade war itself is the fast deterioration in US-China relations in recent years, in areas including ideology and security. The risk of a direct military confrontation or conflict, in disputes over the South and East China seas or Taiwan, is on the rise.
Internally, China’s business environment has soured in recent years, after major setbacks in market-oriented economic reform and political restructuring. The lack of credible economic data, the ambiguity about policy direction and the unconstrained power of officials have all contributed to the decline in market confidence.
Since coming to office in late 2012, Chinese President Xi Jinping has revived Marxist and Maoist orthodoxies. He has exerted state domination over the economy, to make state-owned companies “stronger, better and bigger”. He has also strengthened the Communist Party’s grip on every sector of Chinese society, with moves such as requiring private and foreign companies to set up party branches or cells. Private and foreign businesses are operating in an increasingly hostile environment, politically or economically, and some Chinese businessmen are fearful of being discriminated against or purged, or having their assets confiscated.
Although Xi has responded to such fears by expressing his comradely support for entrepreneurs at a high-profile gathering, his rhetoric alone does not seem to be enough.
To ensure the six “stabilities”, Beijing should make real efforts to restore confidence at every level, whether it is the financial markets, consumers or domestic and foreign businesses. It should convince them of its determination to continue with market reform, promote a rule-of-law system, create a level playing field, and protect both intellectual property rights and private enterprises.
Cary Huang, a senior writer with the Post, has been a veteran China affairs columnist since the early 1990s