China’s mountains of bad debt grow larger by the day. Manufacturers are slashing workers at the fastest rate since the financial crisis in 2009 and industrial profits are in decline. Factories have cut prices for nearly four straight years, foreign reserves are shrinking fast, trade is tumbling and the economy has hit its slowest pace in a quarter-century.
This weekend, one of the most important on China’s political calendar, the country brought out its top political and economic leadership to discuss what should be done.
The answer: no radical or rapid change.
Look not to the sputtering smokestacks of the industrial landscape, urged Li Yining, one of China’s most influential economists, who on Sunday appeared on a government-organized panel alongside several of the country’s most elite corporate and financial voices.
Look instead, he said, to Zhongguancun, the Beijing high-tech park where researchers and young college grads gather in coffee shops to discuss “ideas, creativity and innovation. They are the future of China,” Mr. Li said.
After all, he said, didn’t Bill Gates, too, frequent coffee shops near universities?
“So it is with China. We must have confidence in our economy,” he said, adding: “We can see that a time of vigorous innovation is approaching.”
From outside China, the outlook for the world’s second-largest economy has darkened. But as Chinese leadership gathered in Beijing for a state of the union-style work report and the annual meeting of its rubber-stamp legislature, the country offered a sunnier outlook.
Yes, 1.8 million people might lose jobs as the overinflated coal and steel sectors begin to shrink. But China will pour 100 billion yuan ($21-billion) into resettling and retraining – enough to cover more than two years of salary for steel workers in some parts of the country.
China wants to shift its economy to a more innovative model, with scientists and entrepreneurs finding new ways to make money, and shoppers finding new reasons to spend it on cars, electronics and vacations. It wants more science centres, innovation hubs, big data operations and advanced factories – places that require people with radically different skills than China’s current work force, where just one in nine has attended university.
But its leadership says publicly it can accomplish this without much difficulty.
Xu Shaoshi, China’s top economic planner and head of the powerful National Development and Reform Commission, pledged no massive job losses, appearing to contradict estimates that the hidebound state-owned sector will shed as many as six million people this year.
“On the whole, I’m optimistic about China’s job market,” Mr. Xu told reporters on Sunday. He added: “China will absolutely not experience a hard landing.”
Premier Li Keqiang pledged to keep GDP growth above 6.5 per cent for the next five years, and between 6.5 per cent and 7 per cent in the next year.
The Premier did acknowledge some clouds on the horizon.
“Growth in investment is sluggish, overcapacity is a serious problem in certain industries, some enterprises are facing difficulties in production … and there are latent risks in the financial and other sectors,” he said.
But the state-run Xinhua news agency vowed that China will bend the future to its desires: “Every five-year development plan has been perfectly fulfilled,” it said.
Skeptics suggest growth today has already fallen into the low single digits, saying official statistics have become increasingly questionable.
“I think this five-year plan is particularly unhinged from reality,” said Barry Naughton, an economist at the University of California who has written extensively on China.
“The economy is slowing down and when this happens in general, you should liberalize to unleash new sources of growth,” he said.
China’s planners have struggled to push through reforms, particularly for state-owned enterprises.
Even as they pledged to reduce overcapacity in heavy industries, for example, they rolled out an ambitious plan to stoke a lot more demand for what those industries make. In 2016 alone, China plans to spend 2.45 trillion yuan on new railroads and highways. Economy-wide, fixed-asset investments will grow at a double-digit pace this year, higher even than 2015.
Observers warn such measures may only delay harder choices.
“When confidence in the economy is low, the temptation is to do whatever is needed to shore up growth and not worry too much about the consequences in terms of excess credit and investment,” said Mark Williams, chief Asia economist for Capital Economics.
“But President Xi Jinping also has to think about the next few years and balance the desire to achieve rapid growth now with the need to maintain economic stability over the medium term. There aren’t any easy choices.”
Premier Li offered a more optimistic take.
“Obviously, replacing old drivers of growth with new ones and achieving a shift in development toward greater reliance on human resources, human capital, and innovations in science and technology is a process of painful adjustment,” he said.
“But it is at the same time an upgrading process with great promise. We just have to get through this process, and we can, without question, reinvigorate the economy and ensure its dynamic growth.”Report Typo/Error