In the past few years, China’s macro-economic strategy has largely failed to command the confidence of investors in developed markets, despite the fact that the reported performance of the economy has remained fairly impressive.
Part of the problem has been that there does not seem to have been a coherent, joined-up strategy for maintaining growth while rebalancing the economy towards consumption, and reducing overall debt levels. The policy transparency now taken for granted in the developed economies has not come naturally to the Chinese political system, as Ben Bernanke has pointed out.
China has been trying to improve on this record, in consultation with senior western advisers in some cases. In the past two weeks, there has been evidence of “glasnost with Chinese characteristics” in the economic announcements emerging from the annual meetings of the National People’s Congress.
The overall thrust of Chinese macro strategy now seems to be broadly what is needed, but the intended switch away from “zombie” manufacturing companies towards the new economy will happen only at a moderate pace, consistent with the 6.5-7.0 per cent GDP target, and with no overall rise in unemployment.
With the new strategy in place, the Chinese “landing” does not have to be a hard one, but it is still likely to be a long story, with many twists and turns before it is fully resolved. Read more