How To Accomplish Nothing Without Really Trying

Analysts and news articles admiringly cover the Beijing response to the slowing economy as if doing anything is the right answer.  If doing anything is your baseline for a good response, then yes, any action will be positive.  However, there is very little skepticism about whether Beijing is doing the right thing.

Take this recent article from Retuers which says the following:

“In a nod to growth concerns, Beijing has unveiled a series of small steps in recent weeks that analysts say are geared to providing quick help to the economy.  Last week, Beijing said it will scrap tax for six million small businesses, speed up railway investment and offer more help to exporters.”

Wait a minute, aren’t those the same exact policies that helped cause the problems in the first place?  Infrastructure investment with the heavily indebted rail ministry and more export subsidies or capacity investment for business doesn’t exactly seem like a winning formula.  This is nothing more than more of the same that fails to address the fundamental problems.

This is happening in other sectors of the economy as well.  This Retuers article cited a 40% increase in the amount of land for sale by local governments.  Considering that local governments in China receive an enormous percentage of their revenue from land sales rather than tax revenue and revenue from investment, this seems more like a big red flag (no pun intended).  It seems like more than coincidence that right before concerns over debt and announcements by banks and central government they will audit local government debt, land sales grow by enormous amounts.

Nor is this fairytale thinking limited to journalists but grows like a brain eating parasite into the rosy predictions of investment banks.  The French investment bank Societe General released a research report on what would trigger and happen if there was a hard landing in China defined as growth beneath…..6% (feigned gasp and shock)!!  Let’s ignore the fact that Chinese GDP data is clearly and obviously just made up.  If we take harder, tougher to make up numbers like rail traffic and electricity consumption, also preferred by Party leadership for that very reason, GDP is already well below 6%.  Rail traffic was plummeting in the second half of 2012 and first half of 2013 while electricity consumption was flat and growing slightly in the first half of 2013.

If Beijing is trying to make people feel better then they might be accomplishing that task judged by SocGen and Reuters nonsense.  If they are trying to stave off the inevitable restructuring and reform, they are failing miserable.  Kind of reminds me of the band playing as the Titanic slipped into the North Atlantic.