Not the Usual National People’s Congress

The upcoming National People’s Congress (NPC) is the first major government function in the second of perhaps many terms of the Xi Jinping presidency, and it comes in the 40th anniversary year of the reform and opening period. The Congress will set the tone for policy for the next five years, if not longer.

In terms of short-term objectives, the Congress will likely signal broad policy continuity, with more emphasis on deleveraging and regulatory efforts to reduce financial risks rather than signs of policy support for growth at current rates. Longer-term, however, China’s leaders have built up expectations for economic reforms, and have sent clear signals that the NPC will further empower Party over government. The question of whether a new team of economic officials, including a new central bank governor, will have the mettle to invigorate reforms looms more ominously over China’s economic relations with the rest of the world after the probable extension of Xi’s tenure.

Posted March 4, 2018
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“Squeezing the Water” from China’s Economic Data

Recent data revisions by several northeastern provinces raise new questions about the reliability of China’s economic data. Individually, the data revisions speak to local malfeasance and distorted incentives. Those come as no surprise to us—or to Beijing. The central government has long had processes in place to correct for local distortions when producing data about the national economy.

Nonetheless, the scope and scale of changes announced do shift our understanding of the shape of China’s economic cycle over the past four years. They suggest that industrial activity was somewhat slower in 2014/2015, particularly in China’s northeastern rustbelt, that the size of the national economy is marginally smaller today, and that fiscal conditions in some provinces are even bleaker than currently appreciated.

They also tell us something important about China’s political environment: local governments are currently crying for help in the face of those dire fiscal conditions. We expect to see more revelations of fake data from previous years as deleveraging efforts tighten credit, local budgets stretch, and Beijing pursues efforts to improve its system of national accounts.

Posted February 16, 2018
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Saving Private FAI

Contrary to the reported sharp deceleration in China’s broad private investment in 2016 and 2017 to date, investment undertaken by purely private enterprises is still strong but moderating, growing 10.5% in Jan-Feb 2017 relative to 13.9% in 2015. A one-time data reclassification produced weaker growth for FAI undertaken by other privately-controlled enterprises, and stronger growth in broad state FAI in 2016. Private investment growth in 2017 will depend heavily upon credit conditions, which are tightening due to rising money market rates.

Posted August 1, 2017
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