My latest column: Donald Trump’s second term may well give China’s leadership the much-needed push to rebalance its economy.

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When it comes to explaining the state of China’s economy, beleaguered Chinese investment bankers have reportedly begun employing clandestine tricks in their sales pitch meetings with overseas fund managers in Hong Kong and elsewhere.

Based on anecdotal stories I’ve heard from several fund managers, these meetings typically start with salespeople presenting well-crafted slides that paint a rosy picture of China’s buoyant economic activities. They echo the official line that the country will have little trouble meeting its 5 per cent growth target despite a myriad of domestic and international challenges.

Often accompanied by a wry smile, the speaker would then say, “That is the official version we are supposed to tell you. Now here is what we really think…”

How is the economy in China? Where is the world’s second-largest economy headed? Depending on whom you ask, answers to these questions can outline two sharply different versions of China.

In the first version, widely promoted on the mainland, the country’s leaders and official media talk up a confident economy on an upward trajectory. China is the world’s largest producer of electric vehicles and a key driving force for global economic growth, accounting for more than 30 per cent in 2023.

Under the specific instruction to “promote a positive narrative about the bright prospects for the Chinese economy”, anyone – particularly influential economists – attempting to deviate from the official line and offer alternative theories are muzzled or face even worse punishments.

This version contrasts sharply with another version widely accepted in the international business community: China’s growth engines are showing signs of sputtering, weighed down by weak growth, heavy debts and falling prices.

Now, China’s own version faces further scrutiny and heightened scepticism just days before Donald Trump is set to return to the White House. The US president-elect has packed his incoming administration with China hawks and made it clear he would increase tariffs on Chinese imports on the first day of his second term.

During Trump’s first term in office, China’s nationalists relished calling him chuan jianguo or “Trump the Nation Builder” – a sarcastic assumption that his presidency would undermine US international influence and bolster China’s global standing.

There are fewer such jibes on China’s social media platforms these days. This is not least because the US economy has emerged stronger out of its chaotic pandemic era while China’s economic slowdown, largely caused by self-inflicted mistakes, has heightened anxieties and sparked a recent spate of random violent attacks across the country.

After dithering for far too long, Beijing has finally started to launch long-awaited stimulus measures to bolster faltering growth and restore confidence. In effect, Beijing’s stimulus package resembles the three-arrow approach pushed by former Japanese prime minister Shinzo Abe to revive his country’s economy – monetary easing from the central bank, fiscal stimulus through government spending and structural reforms including boosting domestic consumption.

Ironically, in a sharp rebuke to their own policy of “promoting a positive narrative about bright prospects for the Chinese economy”, policymakers have garbled their messaging. Instead of clearly articulating the scope and details of the stimulus measures to manage expectations, Beijing gave the impression of firing the arrows impulsively and randomly.

The first arrow was fired in late September with great fanfare when the central bank announced measures including cutting interest rates, lowering banks’ reserve requirements and reducing the costs of existing mortgages. Following a short-lived rally in stock markets, however, euphoria subsided rapidly as officials failed to explain what came next and made only vague promises.

The second arrow followed roughly a month later, when the government announced an additional issuance of 2 trillion yuan (US$136.4 billion) to drive infrastructure spending and provide more fiscal support to debt-laden local governments. Officials have since hinted at more special treasury bonds this year, pending approval at the annual session of China’s legislature in March. But the firing of the second arrow has barely made any impact on the markets.

Beijing has kept mum on the timing and scale of the third arrow, or even if one exists. Some analysts have speculated that Beijing is waiting for Trump’s detailed plans for China before firing any third arrow.

This could well be the case, and more importantly, China’s leadership might also need Trump to make the much-needed push to rebalance its economy. Over the decades, the ruling Communist Party has relished taking credit for economic reform breakthroughs, but the fact remains that an external push is necessary to force China to undertake painful economic restructuring.

One notable example is China’s accession to the World Trade Organization in December 2001, whose membership required significant changes to the Chinese economy and paved the way for China’s years of economic boom. Beijing has long relied on two traditional engines of growth: exports and infrastructure spending.

Now, with Trump’s tariff threats and rising trade tensions with the European Union, China’s export outlook for this year remains bleak. Beijing is thus faced with little choice but to boost domestic consumption, whose importance the leadership acknowledges publicly but has yet to give top priority.

The key is to place more money in the hands of the people so they feel confident to spend. In the past week, news emerged that the government has quietly raised salaries for millions of civil servants and public-sector workers, the first major bump in a decade. It kept it quiet presumably because it has yet to figure out how much it would increase pension funds and social security benefits for ordinary people.

I end with this seemingly perverse logic which could work in China’s favour: the higher the tariffs and the harder the economic sanctions the upcoming Trump administration imposes on China, the faster Beijing will act to rebalance its economy.

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