Chinese President Xi Jinping walks past a music band as he is on his way to deliver his speech at a dinner marking the 75th anniversary of the founding of the People's Republic of China on Sept. 30.Andy Wong/The Associated Press
Excitement over the Chinese stock market is at its highest in decades, since the government announced a much-awaited economic stimulus late last month – and traders weren’t even working last week.
China has been on a week-long break to mark the 75th anniversary of the founding of the People’s Republic. But retail traders are champing at the bit to take advantage of the biggest rally the country has seen in 15 years, while the Hong Kong market, the only Chinese bourse open during the holiday, posted its strongest gains in two years.
Some of that mood is spilling over the country’s borders, but not as much as would be expected, given the strength of the bull market. Even those traders preparing to get back into China are recommending caution, while others, including Swiss private bank Lombard Odier, which controls nearly US$250-billion in assets, have said they have no intention of doing so. Many commentators have pointed out that Japan’s stock markets had several big rallies, which did nothing to stop the country’s broader economic decline.
Some of this attitude is reflective of much wider concerns many have about the Chinese economy and the structural problems facing it: a continuing property crisis, a looming demographic bubble, high local government debt and growing geopolitical challenges. While Beijing has taken steps to address some of these – juicing incentives for homebuyers and raising the retirement age – it is not clear China’s leaders are willing to undertake the type of wholesale reform many analysts see as necessary to turn the economy around.
Or they might be. Who knows?
That’s one of the biggest problems with analyzing anything about China today: a lack of information about how and why decisions are made at the top. As Chinese President Xi Jinping has consolidated power around himself in recent years, he has also increased government opacity, with more and more policies set within the black box that has always existed at the pinnacle of Chinese politics, around the Communist Party’s General Secretary and Standing Committee.
This has resulted in decisions that have caught not only observers of China but also the Chinese people themselves completely flat-footed, not least the abrupt decision in late 2022 to abandon China’s tough “zero-COVID” policies, dropping almost overnight many restrictions that had been in place for almost three years at that point.
Part of this opacity problem is because of the secrecy with which Mr. Xi and his closest advisers operate, but beyond their immediate circle, means that once existed of gathering information about Chinese decision-making have fallen away.
The number of foreign journalists working in China is at its lowest in decades, the result of Beijing refusing to grant visas to many news outlets, including The Globe and Mail. At the same time, there has been a crackdown on independent research firms, increased censorship within Chinese media, and growing caution if not fear among academics and think tankers about speaking off script, even in private.
Long-time China watcher Bill Bishop noted recently how hard it’s become “to get any credible information out of China.”
He was commenting on a podcast about the disappearance of Zhu Hengpeng, a senior economist at the state-run Chinese Academy of Social Sciences, after he reportedly criticized Mr. Xi in a private exchange. Mr. Zhu’s disappearance, Mr. Bishop said, was another reason “to be skeptical of any commentary about the economy” coming from China “because everybody has to self-censor now.”
Greater understanding is not only vital for investors but also governments. Many diplomats working in China have complained of reduced access to Chinese officials, while foreign spy agencies have struggled for years to penetrate the Party’s top ranks, amid a ramped up anti-espionage campaign and crackdowns on potential leaks.
Few countries lay their cards on the table for all to see, but a certain degree of transparency is vital to avoid disastrous misunderstandings.
As Steve Coll recounts in his book on the U.S.-Iraq relationship, The Achilles Trap, Saddam Hussein interpreted public messaging from the U.S. in the run-up to his 1990 attack on Kuwait to mean Washington would not intervene. “Years later, in captivity,” Mr. Coll writes, “Saddam asked U.S. investigators: ‘If you didn’t want me to go in, why didn’t you tell me?’ ”
Similar misunderstandings and miscommunication set the stage for the ramping up of hostility that eventually led to the U.S. invasion of 2003, and it’s not hard to imagine an even bigger catastrophe resulting from Washington or Beijing failing to read the other’s signalling over Taiwan or flashpoints in the South China Sea.
Already there are signs of a dangerous level of distrust between both sides: Mr. Xi has reportedly told European officials he believes the U.S. is trying to bait him into invading Taiwan, while Western politicians and military officials often erroneously claim China has a set timeframe for trying to seize the self-ruled island.
It would only benefit China to have channels through which such misunderstandings could be remedied, and for there to be means for Western governments to try and check public pronouncements against private official sentiment. Similarly, a move away from the growing opacity under Mr. Xi would likely do a lot to restore investor confidence at a time when China desperately wants foreign money flowing through its markets.