Politburo Disappointment

The Chinese Politburo, executive committee of the CCP, gathered for their quarterly meeting on economic affairs on July 23rd. While the readout from the meeting suggested that the CPP remained confident that China would reach its relatively modest target of 5% GDP growth for 2023, the tone was markedly more pessimistic than April’s meeting. With sluggish domestic demand and youth unemployment surpassing 20%, last week’s readout was noticeable for admitting to “new challenges” for the Chinese economy. These include “insufficient domestic demand, difficulties in some enterprises’ operations, multiple risks in key areas, and a complex and severe external environment”.

July’s Politburo meeting fell short of promising a full-scale stimulus package for China’s ailing economy. To use a benign metaphor; Xi Jinping wants to increase the water pressure of the Chinese economy by fixing the most obvious leaks in the pipes – but he resists turning up the fossette. The Old China Playbook would have China invest its way out of the deflationary slum with a huge public spending spree in real-estate development, infrastructure, and construction. Yet, this is not what we are seeing. Instead, the action plan that the CCP has laid out touches upon a surprisingly large number of areas including easier access to bank credit for (second) home buyers, debt management plan for local governments, improving the line of communication with private SME’s, elevating the issue of unemployment to “strategic levels”, as well as some targeted investments in advanced manufacturing that serves geostrategic aims, namely, EVs and renewables. The CCP is painting with broad strokes with initiatives that are unlikely to stimulate domestic consumption – the big motor propelling the current deflation wave.

Why will China not resort to major stimulus? I believe the decision reflects both a ‘want’ and a ‘need’ for the Chinese political elite.

Want: In recent years,