A slow month with a big win
The economy still looks weak.
Liberalization is still moving slowly.
The government is still cracking down on dissent.
On the bright side, for China, they score a big diplomatic victory (at America’s expense.)
And a few small steps were taken to help avoid a trade war, which is a good thing.
A slow month with a big diplomatic win
With no major surprises or new initiatives being announced at the National People’s Congress, March was a fairly uneventful month for China, with the exception being the huge victory relative to the Asian Infrastructure and Investment Bank. While the practical implications of China’s victory with the AIIB might be less significant than the headlines would seem to indicate (it is difficult to make multilateral institutions effective, regardless of who is in charge), one has to admit that such a public defeat for the US is unusual and no doubt has the Chinese government feeling pretty good about its position and relations with the rest of the world.
The economy could use a bigger dose of the free market
China’s leadership expected the economy to slow. It looks increasingly possible that the economy will slow more than China thought it would. Meanwhile, China has not acted aggressively relative to monetary or fiscal stimulus, which we think is good because the last thing China should do is make it debt problem worse. On the other hand, given the weakness in the economy, it would be nice to see China act more decisively relative to liberalization. China has announced it is preparing new plans relative to foreign investment and SOE reform. While massive change overnight is unlikely (and unnecessary), it would be great to see China announce plans that involve real reform in a reasonable time frame.
Below are the stories we highlight in our newsletter for March, 2015.
All indications continue to point to a slow economy
Virtually every economic indicator released in February, with the exception of exports, reinforced the notion of a slowing economy. Many indicators matched lows not seen in years.
A survey reveals that while Chinese CEO’s are concerned about short-term economic headwinds, they are still very confident about the long term growth potential in China.
A lower exchange could help exports. But it might also lead to more capital outflows. Recently China has been supporting the RMB, indicating it is more inclined to stem capital outflow than boost exports
Liberalization: Big Words and Small Steps
The leadership’s rhetoric continues to emphasize free market reforms. Big plans relative to issues like SOE reform and foreign investment have been promised. So far only very small steps in 2015.
US Allies Defy US and Join China-Led Bank
A series of US allies from Europe and Asia opted to join the China-sponsored Asian Infrastructure Investment Bank. It is an unusually public diplomatic victory for China over the US, although practical implications are less significant.
The US filed a WTO request for information from China relative to new rules on selling IT equipment to banks in China. China announced it will pause implementation of the new rules.
China announced it is working on a new plan for reform of state-owned enterprises. Consolidation seems to be the main emphasis.
A pollution documentary went viral and then disappeared. Women raising awareness on social issues are detained. A leading judge apologies. Reuters can’t be found.
The National People’s Congress for 2015 concluded without any surprises or major announcements. The government did reaffirm previously identified priorities.