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My latest column: China must go radical to restore confidence in its economy
Beijing needs to stop harassing private firms, rethink its anti-corruption drive and trim the bureaucracy – nothing short of a mind-set change.
China is experiencing a crisis of confidence in its economic strength and growth prospects. That seems to be the prevailing headline in foreign media talking about the world’s second-largest economy. Some analysts even believe that China is facing the worst economic crisis since the launch of reform and opening up in the late 1970s.
There is plenty of evidence to support the argument. After nearly three years of strict pandemic lockdowns, expectations that China’s economy would roar back to life never materialised. Consumers are holding back on spending while businesses are reluctant to expand and instead cutting costs.
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Property prices are falling while some of the country’s largest real estate companies have defaulted on debt payments. Unemployment is soaring, particularly among the youth, so much so that China suspended release of employment data for the 16- to 24-years-olds. Stocks in the Chinese mainland and Hong Kong have tumbled, and the yuan has weakened as investors continued to pull billions of US dollars out of stock markets.
All this doom and gloom has prompted some analysts to raise the previously unthinkable question of whether China is on an irreversible downward spiral and express worries about potential contagion in the global economy.
Under the circumstances, some are puzzled why China has been reluctant to launch a bazooka-style economic stimulus programme like it did in the wake of the global financial crisis in 2008, which succeeded in getting the economy roaring again.
What is Beijing thinking? There is speculation that China’s top leaders still have confidence in the resilience of the economy. It is true that China’s economy is not struggling as badly as is being portrayed in foreign media reports and analyses, and there are tentative signs that it is starting to stabilise.
China’s official manufacturing purchasing managers’ index rose to 49.7 in August from 49.3 a month ago, while the new orders sub-index rebounded to 50.2. A reading above 50 indicates expansion in an activity.
Even the property sector, perhaps the bleakest spot in China’s economy, is starting to show some tentative signs of life. In the past week, official media have reported that potential buyers are returning to the showrooms again in major cities such as Beijing and Shenzhen, following the government’s decision to lift mortgage restrictions and cut interest rates.
However, overall economic growth has been lacklustre, with all three main economic drivers – consumer spending, investment and trade – sputtering. Many commentators appear to think Beijing appears to have few good options to boost its faltering economy over worries of growing debt risks.
That is not true at all. In fact, China has plenty of tools in its arsenal to get the economy roaring again, but making those tools effective requires radical thinking and a bold shift away from China’s prevailing approach, which has throttled business and consumer confidence.
Take China’s private sector, which has played a pivotal role in the country’s economic expansion. Confidence among private business owners has plunged in the past five years as they have felt the double whammy of paralysing lockdowns and unprecedented crackdowns on the alleged excesses of the private sector.
Until comparatively recently, private firms were the target of relentless attacks by nationalists who vociferously argued that the private sector should be thrown into the dustbin of history. Business figures and fund managers suddenly disappeared from public view, and only weeks later did the news emerge that they were implicated in corruption.
Since July, however, government officials have launched a charm offensive to woo China’s private firms. They have released a list of policy measures meant to support the private sector and boost confidence. After being shunned for several years, private business owners are being welcomed into the fold. The latest development is that the powerful National Reform and Development Commission has set up a special bureau to help private firms to “unleash their vigour”.
Scepticism is still widespread, however, and restoring confidence will not be an easy task. Here are some simpler, more effective ways to increase the confidence of not just private business owners but also consumers and foreign investors.
Instead of setting up a special bureau staffed with faceless bureaucrats looking over the shoulders of private business owners, the government should get out of their hair. One of the major reasons China’s private sector has developed into a major economic pillar during the past four decades is that the government has largely left it alone.
Private businesses don’t need an official babysitter, but they do need the government to create a level playing field and proper legal protection. One immediate move to boost confidence would be to release those business owners who have been detained on suspicions of corruption for a prolonged period of time without any explanation.
Another confidence-boosting move is that the government should rethink its expanding anti-corruption campaign. President Xi Jinping’s signature anti-corruption drive has won him popular support and rapidly consolidated his power.
The campaign, launched soon after Xi came to power in late 2012, was originally aimed at tackling official corruption taking place. In recent years, however, the drive has been expanded to target corruption that dates back 20 years or more. This could lead to unforeseen negative effects, not least because rules were more lax back in those days. This has put many officials and businessmen in a panic as few can live up to scrutiny by today’s standards.
To boost consumer confidence and revive the property market, the authorities should double the leasehold terms for residential properties from 70 years to 140 years or longer. That will give many property owners peace of mind as many residential properties have passed the 50-year mark.
Finally, the government can boost confidence by streamlining the bloated bureaucracy. At a time when the economy is in the doldrums, cutting through red tape is necessary to promote growth.