Economists are having a hard time putting China’s epic $7 trillion stock market crash into perspective. The most productive duration and scope is that, since 2021, the market has lost the combined gross domestic product of Japan and France.
And that’s not even the worst news coming out of Asia’s largest economy. No, this is not a case of Chinese deflation worsening at the fastest pace in decades. Or that “China Evergrande” is back in fashion. The reference is to the war that Xi Jinping’s entourage seems to be waging in opposition to the bad news itself.
Last week, the Ministry of State Security reportedly made it clear that Beijing is on the lookout for those who spread negative outlooks on China’s economic and industrial prospects. This chilling warning not to “denigrate the Chinese economy” through “false narratives” is that of Mao Zedong. And that raises troubling questions as China’s influence soars.
China’s most sensible intelligence firm is saying loud and clear the silent component, as it prioritizes “strengthening economic propaganda and guiding public opinion. “The troubling question, however, is what is written between the lines in bold.
In January, Bloomberg reported that Citigroup was dissuading its personal bankers from discussing the Chinese currency or yuan hedging methods on their visits to the mainland. More recently, Xi resurrected the “Article 23” coup that the Communist Party has been trying to impose on Hong Kong for two decades.
The vaguely worded law aims to bring a city that was once Asia’s London closer to China’s restrictions on data deemed detrimental to the state. It builds on the extensive adjustments China imposed on Hong Kong in 2020, following widespread protests a year earlier.
The law focuses on five crimes: treason, insurrection, espionage, destructive activities endangering national security, and outside interference. What constitutes a crime is an open question, and this is infuriating if you work for a foreign investment bank, a media outlet, a consulting firm, or a web platform.
If you’re an economist convinced China’s economy is in trouble, do you dare put it in a report or a speech? If you think a mainland company is cooking the books, how do you warn investors without risking a visit from the authorities? Or if a strategist senses a certain mainland property developer might default soon, do you flag those concerns publicly?
When Xi Jinping came to power in 2012, he pledged to let the market play a “decisive” role in policy decisions. His decade in power has turned the Chinese economy into an even bigger black box.
If a foreign media outlet reports that China’s local government debt risks are worse than people think, are you the one publishing the information?If a journalist interviews a short-term operator like, say, Muddy Waters, he can get in trouble with the Ministry of State Security?
If a hedge fund manager like Kyle Bass, or the George Soros-founded budget, bets against pegging the yuan or the Hong Kong dollar, could social media companies get in trouble for helping to share the information?
If you’re an academic in Hong Kong studying the effects of record mainland youth unemployment—on which China has stopped releasing data—do you bury the research? If you’re a non-government organization that would prefer not to be banned in China researching the environmental damage from “Belt and Road projects,” what do you do?
All of these scenarios could be less hypothetical a year from now, given the events of the next six weeks.
In December, for example, Chinese microblogging Weibo Corp. asked some users not to disparage the economy in their posts. Users are encouraged not to use “various clichés aimed at undermining the Chinese economy” or “attempting to strategically engage and suppress China. “
In recent weeks, commentaries by prominent economists and journalists have been scrubbed from cyberspace. This, at a moment when Xi’s team is working to spotlight upbeat views on the economy, the real estate sector and the stock market.
These are not the movements of a strong and self-confident government. These are the moves of officials who know that their money markets are not in a position to function in global prime time. If China hopes to counteract the trillion-dollar outflows that the economy has experienced since 2021, it is moving in the opposite direction and generating transparency. Let the news come out, smart or bad.
When Xi came to power in 2012, he vowed to let the market play a “decisive” role in policy decisions. Instead, his decade in power has turned China’s economy into an even bigger black box. The Xi era has endorsed stricter censorship of the press, while opacity is greater in monetary circles.
It’s not just that corporate governance has become murkier. Beijing has also sought to export the phenomenon to Hong Kong. Hopes for better credit rating practices, clearer market surveillance mechanisms, and a media universe empowered to monitor inefficiencies, festering risks, or malpractices are not being realized. Understood.
This creates a hole between the economy Xi believes he has built and the one faced by global investors. Again, dimming investors’ attention is the action of a government that is confident and comfortable with its economy in 2024. The smart news will come when Xi’s inner circle is confident enough to let the bad news flow.