In China, discussions about the economy can hit on dangerous subjects in a media landscape closely controlled by the government.\u00a0<\/p>\n
That\u2019s why it was surprising last week to see sensitive financial topics not only allowed to be published but amplified by state-run news outlets. Foremost among them: the country\u2019s worse-than-expected economic recovery.<\/p>\n
\n
At the beginning of the year, just after officials abruptly dropped an array of Covid restrictions that grounded the economy to a halt, the world\u2019s second-largest economy was expected to rebound robustly, led by consumption from pent-up demand, and government help in languishing areas such as real estate and small-business loans.<\/p>\n
A bullish outlook grew out of government pronouncements, media reports, and investor sentiment. Markets rallied. <\/p>\n
All that has changed. Nearly all crucial parts of China\u2019s economy are underperforming, from consumer demand to manufacturing to the long-ailing property sector, which accounts for more than a quarter of China\u2019s total GDP. Markets have now lost most of their gains as subsequent months of data have shown no signs of recovery.<\/p>\n
Initially, authorities displayed a conservative degree of concern by promising or issuing small spurts of stimulus measures. But after months of rhetoric proclaiming things are alright, officials are gradually admitting\u2014or allowing public discussion of\u2014the country\u2019s economic plight.<\/p>\n
This hit a high point last week when China\u2019s new premier, Li Qiang, headed a high-level gathering of the country\u2019s leading economists. Li said China was facing a critical stage in its attempt to recover, and it must \u201cspare no time\u201d in implementing a batch of targeted policies, according to state-run CCTV.<\/p>\n
Experts who spoke at the gathering were even more direct. \u201cThere is a consensus among everyone that the recovery is below expectations. Initially, we thought the economy would quickly rebound after dropping epidemic control measures. But it\u2019s now evident that the rebound has not been rapid,\u201d Liu Shangxi, the influential head of the Chinese Academy of Fiscal Sciences under the Ministry of Finance, was quoted by state-owned China Newsweek.<\/p>\n
\u201cThere were signs of an economic downturn starting from the second quarter of this year. This indicates that risks may be spreading and expanding, and there is little disagreement regarding this assessment,\u201d he said.<\/p>\n
The need to implement an active fiscal policy and a prudent monetary policy is obvious, Liu said. But traditional stimulus measures have reached a point of diminishing returns, he added. Other financial experts on the panel were equally downbeat.<\/p>\n
This level of frank public reckoning with China\u2019s woes is tantamount to government approval, as their comments are normally vetted beforehand.<\/p>\n
To be sure, officials are still insisting things are going to be fine, and that help is on the way. But the measures have been too minor to sway investor pessimism, including this week\u2019s extension of loan policies to boost banks\u2019 willingness to engage with property developers, which is \u201cfar from enough [to stabilize] the sector,\u201d Larry Hu, chief China economist at Macquarie Group, wrote in a research note.<\/p>\n
China\u2019s traditional large-scale supply-side stimulus packages have focused on infrastructure in a country that is now flush with new highways, bridges, and airports, after decades of government-led projects. Measures to boost demand have worsened oversupply in manufacturing and real estate, and stoked local-level debt.<\/p>\n
Despite the more open recognition of China\u2019s faulty recovery, investors remain frozen by a lack of clear policy directions. Many frustrated local investors have resorted to relying on so-called \u201clittle essays\u201d\u2014unverified notes on social media that purport to know what policies are coming or which financial rumors are true.<\/p>\n
Foreign firms are even more in the dark. China recently restricted outside access to once-public business and financial data. Then came a so-called anti-espionage law that experts say puts foreign businesspeople at increased risk.<\/p>\n
The U.S. House of Representatives Select Committee on the Chinese Communist Party on Thursday is set to hold a hearing on these matters. Shehzad Qazi, chief operating officer and managing director of consultancy China Beige Book, is one of three experts invited to testify.<\/p>\n
Qazi said the information environment in China has deteriorated radically in recent years due to censorship and elimination of independently produced economic data. Previous data security and the newer espionage laws have only made matters worse, he told Barron\u2019s<\/em> ahead of the hearing.<\/p>\n\u201cForeign firms now have very little visibility into the true economic conditions in China and even companies with which they\u2019re doing business. Beijing forcing foreign firms to fly blind is not just bad for those companies, but bad for China,\u201d he said.<\/p>\n
This could be bad for China because it could lead to foreign investment drying up as companies are unable to acquire the information they need for due diligence purposes to work with Chinese suppliers or partners.<\/p>\n
The new laws will also directly impact U.S. audits of Chinese companies. \u201cIf the auditing reports do not meet U.S., PCAOB [Public Company Accounting Oversight Board], or SEC [Securities and Exchange Commission] standards, then you\u2019re looking at an increasing number of companies not only being delisted but eventually becoming \u2018uninvestable\u2019 for U.S. investors more broadly,\u201d he said.<\/p>\n
Write to editors@barrons.com<\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"In China, discussions about the economy can hit on dangerous subjects in a media landscape closely controlled by the government.\u00a0 That\u2019s why it was surprising last week to see sensitive financial topics not only allowed to be published but amplified by state-run news outlets. Foremost among them: the country\u2019s worse-than-expected economic recovery. At the beginning […]<\/p>\n","protected":false},"author":1,"featured_media":35038,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-35037","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\n
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