Policymakers around the world have long envied China’s ability to get big things done. A huge 4 trillion yuan (R5.3 trillion) stimulus plan as the global economy cratered in 2008? No problem. Marshalling banks to lend trillions more? Check. Enacting sweeping regulatory changes at a moment’s notice? You bet.
Ah, the good old days. Now, a once-in-a-decade leadership shift is getting in the way of the stimulus-happy policies to which investors became accustomed. The nimbleness that helped China steer around the worst of the global crisis is confronting political paralysis of the kind more often seen in Japan, Europe and the US. The upshot is that China’s 7.6 percent growth rate may fall more in the next 12 months than anyone expects.
It’s not that Premier Wen Jiabao doesn’t get the extent to which the supposedly unstoppable China has hit a wall. Just as in 2009, the premier is visiting key industrial cities. Wen is facing dour looks from manufacturers surrounded by mounting piles of unsold goods.
Factory warehouses are cluttered with excess stock, store shelves are filled beyond capacity, and dealerships are choked with cars that used to speed from showroom to road. And yet Wen’s team in Beijing has been eerily silent about how it plans to revive things. That may be because the short answer is, it doesn’t.
One problem is that China has run out of obvious ways to kick-start its $7.3 trillion (R61 trillion) economy. It was easy in 2008: pump tens of billions of dollars into a sweeping stimulus project and 10 percent growth followed. China’s success gave markets the impression that its leaders could wave some magic wand and growth would be the result. Magic is in short supply now.
Local governments are strapped for cash and awash in debts that could turn bad. The euro zone seems locked into permanent crisis mode while the US is bogged down with debt, economic stagnation and political paralysis. China proved it can live for a few years without American and European customers, but not forever. The bigger topic is politics amid this year’s leadership shift. Instead of tackling the issues of growth and economic reform, officials are punting on big decisions.
Then there is Asia’s surge of nationalism. Political scientists have many theories about why China, Japan and South Korea are suddenly at loggerheads. One theory that deserves attention is how these countries deflect the blame for troubles at home.
In Japan, Prime Minister Yoshihiko Noda is spectacularly unpopular after raising taxes and restarting nuclear reactors that were shuttered after last year’s earthquake. Playing up territorial disputes allows him to change the subject.
The same strategy prevails in China. Unwelcome headlines focus on the widening gap between rich and poor, the Bo Xilai scandal, and charges that China fudges economic and pollution statistics. Turning the public’s attention to China’s former colonisers has been a political winner.
The loser in all this is economic co-operation in Asia. Also on the losing side is vital economic change in China. Over the last decade, Wen and President Hu Jintao produced rapid expansion, but few of the structural reforms China needs for balanced growth in the decades ahead.
Traders looking for another dose of stimulus are expressing disappointment that none seems forthcoming. The Shanghai composite index is down 13 percent so far this quarter. Those declines may accelerate as China’s leadership transition distracts lame-duck officials from giving markets their fix.
William Pesek is a Bloomberg columnist.