Beijing Tests Our Patience

Will Beijing take the necessary steps to restore confidence in its economic policies? Sinology explores.

Key Takeaways

  • Beijing is testing our patience, taking only incremental steps to restore confidence in its economic policies, when much more is clearly needed.
  • I am optimistic, however, that a more robust course correction is coming in 2024, when slower growth will force China’s leaders to do more.
  • Confidence can be restored in my view if Beijing takes steps that convince entrepreneurs, households and investors that the government is getting out of the way of business, is fully supporting the private sector and markets, and is creating a more transparent regulatory regime.
  • Xi and Biden have succeeded in stabilizing the bilateral political relationship, which should reduce concerns among investors that conflict might hinder an economic recovery in China.

Chinese entrepreneurs are frustrated. Chinese investors are impatient. Global investors, too. The Chinese government is testing our patience, as it has taken only incremental steps to restore confidence in its economic policies. It is likely that patience will eventually be rewarded, but probably not until well into 2024.

Since the mid-1990s, Chinese leaders have been fairly successful in managing their unique version of state capitalism. They’ve made plenty of mistakes, but usually course-corrected quickly. This time, however, corrective action has come slowly and incrementally.

The leadership in Beijing may believe the economy is healthy enough that bigger changes aren’t warranted. They may believe that the Chinese stimulus in response to the Global Financial Crisis went too far, so they are cautious about doing anything significant today.

In the first half of 2024, however, it is likely that the leadership will recognize that a lack of confidence by entrepreneurs and households is creating significant risks and slowing growth, and that a robust policy response can be effective without being excessive. At that point I expect to see more aggressive policy changes.

I also expect stability in U.S.-China relations in 2024, which should reduce concerns among investors, including those in China, that a worsening political relationship might hinder an economic recovery in China.