Letter To Shanghai No 1146 - A work in progress

So, let us look past the media debate of whether 5% is achievable or, indeed, if the official Chinese data is reliable. We can agree that any GDP result is achievable if Beijing is prepared to pay for it, and if Beijing is prepared to pay for "around 5%," then how will Beijing fund the expenditure?

What we are seeing is the leadership trying to pull China from an economy based on export and domestic construction to one that is based on high-tech leadership that is more equitable than its former self, based on the ideas of common prosperity that are economic, cultural and environmental. The overarching question is, now that you have moved millions out of poverty, how do you become a modestly rich nation and at the same time improve the quality of life?

Although there is a vast to-do list, there is one central requirement, that Beijing must raise the levels of domestic consumption and by extension lower the vast numbers of youth unemployed, by all means possible.

As you are well aware, I'm not a member of the Politburo, so my opinion is worthless, but if I were in Beijing, I would not look to invest in or repair any particular industry, as this may create imbalances or bottlenecks or support sectors that are no longer economic; rather, I would lower the barriers to entry, lighten regulatory overburden, flatten the differential between state-owned and privately owned enterprises, lower taxes at the lower and middle-income end and lower interest costs where I can, and let the market sort out the winners and losers.

This morning, the Caixin Composite PMI for February came in at 52.5, the same as January, and it is the fourth consecutive month of expansion. In a comment from Dr. Wang Zhe, senior economist at Caixin Insight Group, "At the start of 2024, policymakers doubled down on measures aimed at stabilizing growth and strengthening market confidence." "Looking ahead, the focus should be on the effectiveness of the measures."

From what I have read so far, Beijing is long on targets but short on detailed plans and how they may be achieved. That is not an oversight. It is human nature that when a problem is very complex, you either do nothing, fearing that you may make the problem worse, or choose to resolve an easier problem. As the data may indicate, China is recovering, and there is no incentive to issue new or dramatic policies.

However, Premier Li Qiang's speech that delivered the "around 5%" GDP growth target was, as we know, approved word for word by President Xi and the Politburo. So, the leadership has spoken, the administration has been instructed, and it is for the administration to deliver - how they do so is a work in progress.

Have a good day,

John