Early Returns from the Party Plenum

While the international press has been obsessed with the Communist Plenum wrapping up in Beijing, the Chinese government and by extension press a has been obsessed with American talk show host Jimmy Kimmel calling for him to apologize for a third time after a child on his show said the best way to solve America’s national debt problem was to “kill everyone in China.”  The plenum in China has hardly been publicized with major Chinese news portals omitting it all together.

What is so interesting about the international coverage is their focus on specific phrases.  One paper focused on the official communiqué giving greater role to the free market.  Chinese media however focused more on the wording giving primacy to public ownership of industry.  Only a few international outlets decided to focus on the repeated emphasis on “develop(ing) the public economy.”    The official communiqué was written to give everyone a little meat without actually saying anything at all.  If you changed the date at the top, the same communiqué could have been written for any plenum since 1979.

There are a couple of points worth noting specifically.  First, what is amazing isn’t that the communiqué was so bland, that was somewhat expected, but that Beijing had set the bar so high prior to the plenum and then released this.  It was only a couple of weeks ago that Beijing was promising “unprecedented” reforms.  This is not a good example of managing expectations.

Second, given the opaqueness of Beijing politics, the real detail can be expected in dribbles over the next few months.  In Chinese politics, it is frequently only after the fact what the policy actually was.  So far no official policy has been released, only vague generally platitudes that signify nothing.  Maybe the real reforms will come later, but as with the communiqué, don’t hold your breath.

Third, what I believe is most puzzling is the western idea, and even held by some in China, that the new leadership is interested in real economic reform.  It is a very common narrative to cast the new leadership and Xi Jinping as crusading reformers obstructed only by reluctant local governments, the military, or even Maoists.  While internal party politics undoubtedly factor in, there is no tangible evidence that the new leadership has anything in mind other the continuing current policies.  Bank continue to create credit a break neck pace even while setting less aside to cover bad loans.  Fixed asset investment is still growing at twice the rate of industrial production and more than 50% faster than consumer spending.  There is absolutely no tangible evidence that economic policies are pursuing anything other than the historic growth model.

If China bears can rightly be accused of always expecting an apocalypse, China bulls can rightly be accused of having faith in the complete lack of evidence.  There is no rebalancing.  The PBOC continues to keep banks afloat.  Economic reform for the first year has been non-existent.

The markets reaction has been predictable.  The Hang Seng dropped about 1% upon the communiqué has been flat pretty much the past two days.  Investors are not impressed.

Here’s hoping the next year produces more economic reform than the last one.  Though, I wouldn’t hold your breath.