China’s economic rescue plan skips political reform
HONG KONG–In the recently concluded National People’s Congress annual session, Chinese leaders promised their nationals a four-pronged approach in dealing with the slowing economy. That included cutting excessive industrial capacity, inventory liquidation, simultaneous reduction of debt levels in multiple sectors as well as advancing structural reforms.
The cuts were cloaked in euphemistic language. Slashing industrial capacity became “de-capacity,” inventory liquidation, “de-stocking,” and tightening debts levels was recast as “de-leveraging.”
Soon, some witty Chinese netizens came up with jokes on these measures.
One quip says, “Once upon a time, there was a fishing pond. All were welcomed to fish at a fixed price of a hundred bucks. For those failing to net a fish, a chicken would be given as a token of gratitude. Every customer was happy with this arrangement as they all left the pond with a chicken, until they discovered that the so-called ‘fish pond’ was actually a chicken farm and there was never a single fish: In a nutshell, this is pretty much what ‘de-stocking’ is all about.”
For the Chinese grassroots, perhaps sarcasm is one of the best ways to deal with adversity, especially when all the media is ordered to pledge “absolute loyalty” to the ruling communist party. This is what they called “bitter merry.”
Miner protests erupt
Otherwise, they might choose the alternative method of taking to the streets. Massive coal-miners’ protest erupted on March 11 at Shuangyashan City in northeastern Heilongjiang province. The rally was reportedly sparked off by a remark by Lu Hao, governor of the province, who told reporters that no miner in the rust-belt province had been “short-changed a single dime.” Furious protesters complained resentfully about wage arrears, apparently due to financial distress of their state-owned enterprise (SOE) employer.
Some analyst fear that a vicious cycle awaits. China’s policy of transition from an export-led to a consumer-led economy has created its economic slowdown, and this has affected commodity prices including coal, which are in a free fall. As a result, lay-offs are inevitable and people can spare no money in consumption.
Under such circumstances, cutting excessive industrial capacity is a pressing agenda, and the Chinese authorities have apparently come up with a plan. Xiao Yaqing, director of the powerful government commission that oversees state assets, mentioned twice within four days the importance of reshuffling the mammoth SOEs. Analysts said the frequency of his remarks indicates the determination of top leaders behind the move. Chinese media cited anonymous sources as saying that the target is reducing the number of SOEs directly under the central government from 106 to under 100.
Energy tops overhaul list
Li Jin, chief researcher with the China Enterprise Research Institute, was cited by Chinese media as saying that the energy sector is a top priority of the de-capacity strategy and that he predicted the oil industry would be further consolidated. He said a new state pipeline network corporation will be formed to control the majority of China’s onshore oil and gas production. He also identified the metallurgical industry, military sector and shipping business as focuses of further mega-mergers.
The reshuffle of Central SOEs had actually begun last year. As many as 12 such SOEs, all directly under the supervision of the central government, have undergone re-organisation. China’s transport sector spearheaded the scheme as a new CRRC Corporation Limited (China Railway Rolling Stock Corporation) was formed last June, following the merger of China CNR Corporation and CSR Corporation Limited.
Li admitted that the reshuffle is not merely a business decision but also serves political ends. A major reason for this overhaul is accommodating President Xi Jinping’s “One Belt, One Road” notion.
By “One Belt,” China is referring to the inception of an “economic belt,” which includes countries on the ancient Silk Road through Central Asia, West Asia, the Middle East and Europe. In addition, the “One Road” is referring to a somehow awkward coinage of “maritime road” that links China’s port facilities with the African coast, pushing up through the Suez Canal into the Mediterranean.
Xi’s “One Belt, One Road” project aims to redirect the country’s domestic overcapacity and capital for regional infrastructure development to improve trade and relations with ASEAN, Central Asian and European countries. Yet its feasibility is doubted by many critics.
6 million redundancies?
The magnitude of the SOEs’ reform is so enormous that few would not be affected. The Central Economic Work Conference last year had stated clearly that all “zombie enterprises” — those firms that are still surviving because of lenient creditors (government-run bank) which lend them money at an extremely low interest rate — “should be shut down completely”.
Li Yanlin, an analyst with the Industrial Securities International, a Hong Kong-based securities firm, estimated that about 5.64 million workers could become redundant if all zombies are forced to close.
Even if all the above measures are adopted, it is doubtful whether such steps alone can revive China’s economy. Critics of China believe that an all-important element is missing from China’s economic rescue package: political reform. In addition, many western experts said that further opening up of market and currency is vital for China.
However, International Monetary Fund (IMF) Managing Director Christine Lagarde seems to endorse a more diplomatic fashion in dealing with China. Lagarde said the IMF may raise its 6.3% growth forecast for the Middle Kingdom due to the nation’s economic overhauls and stimulus. The figure could be increased “a little more” after an assessment of the measures, she said.
“We believe China will continue to grow,” Lagarde said. “If those reforms are implemented and the stimulus announced also directed to the most efficient leverage in societies, which we believe is more consumption than necessarily investment that would be fueled by credit, then the recipe should be quite good for China to lead a continued quality growth.”
Talk is cheap though. The moment of truth for the outcome of China’s prescribed solutions to her tumbling economy will be revealed in a jiffy.
Fong Tak Ho is a longtime Hong Kong journalist who has worked for the Hong Kong Standard, the South China Morning Post, Ming Pao, Asia Times Online and other publications.
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