The macroeconomic data has shown improvement over the past two months, bringing a sense of warmth to the market. Public opinions on recent economic indicators have also emerged, with many expressing skepticism about the long-term sustainability of this growth. There is concern that efforts to restructure the economy and push forward reforms might be undermined by a return to old strategies—such as credit expansion and investment-driven growth. These worries are not unfounded. In the face of complex domestic and international conditions, especially during periods of economic slowdown and declining market confidence, certain traditional mindsets and practices continue to influence public perception.
This tendency is evident in two main ways. First, there is an overreliance on credit expansion and pressure on the central government to intervene. Common tactics include exaggerating economic fluctuations as "hard landings" or even financial crises, which is a well-worn strategy. However, this year's approach has failed because the new administration is actively addressing deep-seated structural issues while cautiously using short-term stimulus measures. The so-called "money shortage" in June was a result of the market struggling to adapt to these new policies.
Second, local governments have become more aggressive in their investment initiatives. Whenever economic pressures rise, they tend to launch large-scale investment plans. For example, in the second half of 2012, despite the People's Bank of China maintaining a tight monetary policy, local governments pushed for increased credit, leading to a rise of 730 billion yuan in new loans compared to 2011.
China’s economic transformation faces resistance, but the key lies in the determination to pursue a new development path. It is crucial to avoid misinterpreting economic trends and making incorrect policy judgments. Recently, some analysts have claimed that the Chinese economy has "stabilized and rebounded," suggesting it has reached a bottom and will soon enter a new growth phase. This theory requires careful scrutiny.
Since the 2008 global financial crisis, there have been two instances of such optimism. The first occurred at the end of 2009 and the start of 2010, when many believed China had recovered and entered a new growth cycle. However, the trend reversed, with growth declining each year since 2011. A second wave of similar claims came at the end of 2012, predicting a strong rebound in 2013. Many institutions expected growth to exceed 8%, even reaching 9% or higher.
Such "stabilization and recovery" narratives do not align with reality and can be misleading. China's potential growth rate has dropped significantly due to resource constraints, environmental challenges, and unresolved structural issues. While the economy is still in a bottoming-out phase, it is not yet near the bottom. Even if stabilization succeeds, a sharp rebound is unlikely. Instead, the economy will likely enter a period of slower, more sustainable growth.
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, with a slight rebound expected. It reflects the effectiveness of early measures taken by the new government and the gradual recovery of market confidence. However, this stability does not signal an upward trend. In fact, 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%. These figures may give the impression that high-investment and energy-intensive industries are driving growth. However, this is a misunderstanding. 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. Such effects are not sustainable.
Looking ahead, real estate may experience another round of adjustments, adding more downward pressure on the economy. Globally, the economy remains in a deep adjustment phase, and export growth will continue to face significant challenges.
The "improvement" part refers to structural optimization and progress in transformation. Two key signs of this are: first, while investment in manufacturing declined, transportation, logistics, and postal services saw much stronger growth. Second, although economic growth has slowed, employment rates remain high, and the service sector continues to benefit from supportive policies. Tax cuts have also improved the environment for small and micro businesses.
In conclusion, the key to avoiding misinterpretation of the new economic policy is to 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 focus was on a clear policy framework: macroeconomic policies should be stable, microeconomic policies should be flexible, and social policies must ensure basic living standards. Since the new government took office, numerous State Council meetings have introduced measures aimed at structural adjustment and reform. From administrative system reforms to financial liberalization and micro-level revitalization, these steps indicate that economic reform is entering its most challenging phase. With continued implementation and further deepening, these policies will gradually unlock significant market potential.
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