The macroeconomic data has shown improvement over the past two months, bringing a sense of warmth to the market. Public opinion on recent economic performance is mixed. Many remain skeptical about the long-term sustainability of this growth and are concerned that efforts to restructure the economy and push for reforms may lead to a return to old practices—such as credit expansion and investment-driven growth. These concerns are not unfounded.
In the current complex domestic and international environment, especially when the economy is under pressure and confidence is waning, there is a tendency to revert to familiar but potentially harmful strategies. This mindset is evident in two key areas.
First, there is an overreliance on credit expansion and pressure on the central government to take action. A common tactic is to exaggerate economic slowdowns, labeling them as “hard landings†or even financial crises. However, this year’s usual tactics have failed because the new administration is exploring innovative solutions to address deep-seated economic issues while using short-term stimulus policies cautiously. The so-called “money shortage†in June was a result of the market struggling to adapt to these new policies.
Second, local governments are showing increased investment enthusiasm. Whenever economic pressures rise, many regions rush to launch large-scale investment plans. For example, in the second half of 2012, despite the People's Bank of China not significantly loosening monetary policy, local initiatives forced a surge in new credit, which exceeded 2011 levels by 730 billion yuan.
Clearly, China’s economic transformation faces resistance, but the key lies in maintaining the determination to pursue a new development path. This requires avoiding misinterpretations of economic trends and policy directions.
Recently, some analysts have claimed that the Chinese economy has “stabilized and rebounded,†suggesting it has hit rock bottom and will soon enter a new growth phase. Such views need careful analysis.
Since the 2008 global financial crisis, authoritative voices have made two predictions of “stabilization and recovery.†The first came at the end of 2009 and early 2010, when many believed China had emerged from the crisis and was entering a new growth cycle. However, economic growth declined each year after 2011. The second prediction came at the end of 2012, with expectations that China would rebound strongly in 2013, with growth rates above 8% or even 9%. Most institutions expected similar results.
These “stabilization and recovery†claims do not align with the actual economic trend and can be misleading. China’s potential growth rate has dropped due to resource constraints, environmental challenges, and unresolved structural issues. From a cyclical perspective, the economy is still in the process of stabilizing, though not far from the bottom. Even if stabilization is achieved, a sharp rebound is unlikely; instead, the economy will likely enter a period of gradual adjustment.
The idea of a rapid rebound contains unrealistic high-growth expectations, such as 8% or even 9-10% growth. Under this narrative, some local governments are eager to seize the opportunity for large-scale projects.
In contrast, I believe the current economic trend should be described as “stable and improving.†“Stable†means that growth has temporarily stabilized within a reasonable range, without falling sharply. In fact, there may even be a slight rebound. This reflects the effectiveness of early measures taken by the new government and the recovery of market confidence. However, stability does not mean stagnation—it does not indicate an upward trend. Instead, the Chinese economy will continue to face downward pressures in the coming years.
In August, industrial output grew by 10%, and power generation increased by 13.4%. While these figures might suggest that high-investment and energy-intensive industries are driving growth, they are misleading. These numbers reflect temporary factors, such as seasonal and weather-related influences. This summer, extreme heat led to increased air conditioning use, boosting electricity consumption. This is a one-time effect and not sustainable.
Moreover, real estate is expected to face a third round of adjustments next year, putting more pressure on the economy. Globally, the economy remains in a deep adjustment phase, and export growth will continue to face significant challenges.
The “good†part refers to structural optimization and progress in transformation. Two signs are evident: first, while investment in industry and manufacturing slowed, investment in transportation, logistics, and postal services grew faster than in previous years. Second, although economic growth has slowed, employment rates remain high, and the service sector is receiving policy support. Tax cuts and exemptions have improved the business environment for small and micro enterprises.
In summary, the key to avoiding misjudgment of the new economic policy is to correctly understand the central government’s vision. This is a long-term strategy, not a short-term fix. During the two Politburo meetings earlier this year, the macroeconomic situation was analyzed, and a clear policy framework was emphasized: macroeconomic policies should be stable, microeconomic policies should be flexible, and social policies must ensure basic living standards.
Since the new government took office, most State Council meetings have introduced measures to adjust structures and promote reform. From administrative system reforms to decentralization, financial reforms, and micro-level revitalization, all signal that economic reform is entering the “deep water zone.†With continued implementation and deeper reforms, these policies will gradually unlock vast market potential.
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