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There are few places as rife with lazy axioms as the China-watcher sphere. The star of this menagerie of truisms is that if China’s economic growth rate were to fall below a certain point, it would trigger social unrest, worker protests, perhaps even an existential threat to the Communist Party.
For years that number was believed to hover in the vicinity of 8% growth, as the Economist observed a dozen years ago. Later it fell to 6%, then 5%. Oddly, over the last two years or so, as the possibility of notably weaker economic expansion became real, chatter about this fearful threshold hushed to a whisper. Discussion of China’s malaise in general remained a hot topic, but the repercussions focused more on global effects, debt control and the country’s industrial upgrading. The political-fallout “magic number” vanished like magic.
It took the slowest growth in 30 years, several bank runs, and a local-level debt crisis last year to bring significant support measures from Beijing. Were the worrywarts wrong in assuming Beijing was frightened of letting its economy cool? Should we recalibrate our policy expectations now that we have seen years of Beijing reacting without alarm to expansion of half what it had been a decade ago?
The question has gained new life as China refrains from implementing a stimulus that seems commensurate with the crushing data we continue to receive about its economy.
The data include the unprecedented collapse of exports, industrial production and fixed-asset investment in the first two months of the year. ANZ projected this week that China’s first-quarter GDP would fall 9.4% on a year-on-year basis. The China Beige Book said an 11% fall is “not unreasonable.”
As recently as two weeks ago, these dour early 2020 expectations were accompanied by general confidence that a second-half rebound would result in an annual growth rate in the small but manageable domain. That has started to change as the pandemic has spread beyond China’s borders.
In downward revisions, Goldman Sachs, UBS and Nomura now predict China’s economy will grow in the 1%-to-3% range for all of 2020. The low end of the World Bank’s latest range now says growth could be flat. Others forecast actual contraction.
The best case of these scenarios would still be worse that in 1976, the year Mao Zedong died and the Cultural Revolution ended.
The at times violent pro-democracy movement in Hong Kong was distressing enough for Beijing; discord on the mainland, the long feared result of a significant economic slowdown, has long been viewed as intolerable.
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But maybe the jobless rate is rebounding? In fact, Premier Li Keqiang seemed to brush away these other metrics when he said a few weeks ago, “It’s not a big deal whether the economic growth rate is a bit higher or lower this year, as long as China’s job market is stable.”
Yet new data show the highest jobless rate on record, well above 6%.
The overall uncertainty has provoked a weeklong debate among luminaries of China’s central bank about whether the country should simply abandon a growth target for this year. Setting a target would “kidnap macroeconomic policies and eventually force the use of an all-out stimulus,” said Ma Jun, a member of the People’s Bank of China monetary-policy committee and a previous head of the bank’s research bureau.
Ma’s statement prompts the question many have been asking as China has rolled out a targeted series of rescue measures that largely focus on cutting reserve requirements and expanding credit to small lenders: When is Beijing going to unleash a stimulus in line with the dire economic numbers?
Contrast that with the U.S.’s passing the largest-ever financial stimulus package in its history, alongside the Federal Reserve’s cutting rates to zero. Japan is set to pass what could be its biggest-ever stimulus, and Europe has made bold moves despite deficit concerns.
No one thinks Beijing doesn’t care about this most important of macroeconomic numbers. In fact, officials continue to posit GDP growth scenarios that are rosier than private estimates.
“The authorities may be exaggerating those numbers to make people feel a little better about this than has been quite warranted yet,” said Matthew P. Goodman of the Center for Strategic and International Studies.
Either way, it seems time to retire the idea that there was ever a magic number that China needed to grow at to avoid a social disruption posing a threat to what might instead be the most invulnerable leadership in decades.
Tanner Brown is a writer for MarketWatch and Barron’s and producer of the Caixin-Sinica Business Brief podcast.
