My latest column: How is it possible to restore confidence if one has to be economical with the truth? My take on China’s Central Economic Work Conference held this week

I wrote the piece before the Ministry of State Security, China's top spy agency, issued an explicit warning about talking down the "bright prospects" of China's economy.

Much like global investors eagerly poring over the US Federal Reserve’s economic assessment statement for hints on the funds rate following its meetings, Chinese analysts approach the readout from China’s annual central economic work conference with a religious zeal, looking for changes to the wording and tone to get a sense of the economic priorities for the following year.

Following the agenda-setting meeting of China’s top leaders earlier this week, Chinese analysts have tried to make sense of the new phrase xian li hou po (先立后破）, which literally translates as “establishing the new before abolishing the old”. China’s leaders have recently introduced this phrase into the guiding principle for setting next year’s policy and reform agenda, which also includes wen zhong qiu jin （稳中求进）, or “seeking progress while maintaining stability”, and yi jin cu wen （以进促稳）, or “pursuing stability through growth”.

Some analysts are heartened by the introduction of the new buzzword, taking it as another clue that Beijing will give more weight to growth for next year as it tries to find a better balance between its dual targets of national security and development.

But many people seem unable to tell what that phrase really means. What is the “new” they want to establish and what is the “old” they want to abolish? Even the Xinhua editors responsible for English translation of the phrase and who are familiar with the thinking of the leadership don’t appear to be sure.

In the English readout from the Communist Party’s Politburo meeting on December 8, Xinhua translated the phrase into “prioritising development before addressing problems”. But the English version of the work conference statement included the translation “establishing the new before abolishing the old”.

In fact, the central government first mentioned the phrase in a Politburo meeting in July 2021 when they were worried that China’s decarbonisation campaign had led to a severe power shortage. Following that meeting, China has slowed the campaign by relaxing the pace of shutting down coal mines and transitioning to renewable energy. At the annual work conference in 2021, leaders continued to highlight that phrase in their readout, presumably in the same context.

Some analysts might speculate that the fact the buzzword was highlighted again indicates a new thinking on how to deal with a slumping property market, mounting local government debt, and troubled small and medium-sized city commercial banks – three of the many challenges Beijing needs to tackle to restore economic vigour.

In particular, there is a sense the buzzword could signal a change of policy towards the property market, in which several leading developers have defaulted amid falling prices. This has put a damper on China’s efforts to spur an economic recovery in 2024.

“Establishing the new before abolishing the old” is not the only wording that has left people confused; an even more puzzling phrase was included in the work conference statement. In the paragraph focusing on strengthening the consistency of macroeconomic orientation, the statement said that efforts must be made to “include non-economic policies in the assessment of macroeconomic policy consistency to ensure that the policies form synergy”.

What are the “non-economic policies”? Does it refer to the administrative policies that have hampered the growth of the private sector and foreign investors, such as unexplained fines, raids and other actions against private and foreign firms which have made it increasingly risky to do business in China?

The Paper, a digital newspaper published by the Shanghai municipal government, said in an editorial on Wednesday that the phrase apparently referred to the fact the growth of the non-state sector has been hampered by regulatory and administrative actions in environmental protection, firefighting, education, labour, safety and natural resources. Many of those measures are “non-economic policies”, which adversely affect the sentiment of the private sector.

If that is the case, it raises the question of why China’s leaders did not clearly spelled it out, particularly when business confidence is so low. While China’s leaders patted themselves on the back for having “achieved an economic recovery”, they also acknowledged that they had a confidence issue.

“Urging stronger confidence” has become another buzzword. How is China meant to achieve that? Evidently, more efforts should be made to “strengthen economic propaganda and public opinion guidance, and promote a positive narrative about the bright prospects for the Chinese economy”.

This gives the impression that there is nothing seriously wrong with the economy, but that the country’s propaganda machine has done a poor job. Chinese state media are already saturated with glowing reports and commentaries about the bright prospects for the economy.

The new directive seems to target online commentators and analysts who write research reports for clients at brokerages, consultancies and think tanks. Many online pundits have already seen their social media accounts suspended because of their frank and honest comments, and analysts have been warned they must be careful in their choice of words when writing about the Chinese economy.

One Hong-Kong-based fund manager told me that when sales people from Chinese brokers come to meet him, they first flash PowerPoint presentations on the bright prospects of the Chinese economy. After the presentation, they go on to share what they really think.

How is it possible to restore confidence if one has to be economical with the truth? No wonder the stock markets in Hong Kong and on the mainland fell on Wednesday, the first trading day after the work conference statement was released.

Republished from today’s South China Morning Post.

https://www.scmp.com/comment/opinion/article/3245067/how-can-chinas-economic-confidence-recover-amid-confusion-and-censorship.