Chaixin: "China's Economy in PTSD State... Top Leadership Must Step Up"

Focus on Shared Prosperity Over Economic Growth in the Past Decade
It Must Be Clearly Stated That Economic Development Remains Important

A diagnosis has emerged that the Chinese economy is suffering from post-traumatic stress disorder (PTSD) after a prolonged zero-COVID policy. To resolve this, it is explained that the top leadership must step forward and clearly state that economic development is the primary goal to restore trust.

On the 17th, Chinese economic media Caixin published a column by Chen Changhua, China strategist at Alethea Capital, containing this analysis. Chen explained, "The weak economic indicators and market performance in the first half of the year show that the further recovery of the economy is facing bottlenecks," adding, "It can be said that the Chinese economy is suffering from PTSD after multiple shocks over the past few years."

[Image source=Reuters Yonhap News]

He went on to diagnose that the Chinese government's interest rate cuts and real estate market adjustment policies aimed at stimulating the economy were "limited in scope and largely ineffective." He particularly pointed out that as of the third quarter of last year, Chinese households' net savings increased by 14 trillion yuan (approximately 2,483.88 trillion won) compared to the beginning of the year, reaching an all-time high, emphasizing the need to address the persistent contraction in consumer sentiment.

He stated, "The Chinese government's COVID policy inflicted wounds on social trust that are difficult to heal, and the strengthened supervision of private capital since 2020 has also lowered corporate trust," arguing, "Therefore, the most effective stimulus measure would be one that gains trust from consumers and businesses."

As a specific measure, he explained that the top leadership should directly step forward and mention that 'economic development' is an important goal. He said, "Over the past decade, the Chinese government has downplayed the importance of economic growth as a major policy goal, shifting focus to common prosperity, real estate deleveraging, financial regulation, and geopolitical competition," adding, "If the government can clearly reaffirm that economic development remains the most important goal, it could greatly enhance trust."

He continued, "Support for private enterprises must also be strengthened," explaining, "It is very important for the top leadership to express strong support for private entrepreneurs and actively gather stakeholders' (businesses') opinions before introducing policies." Additionally, he added, "Restoring communication mechanisms could be a practical path to rebuilding corporate trust."

Chen also proposed direct fiscal support such as consumer vouchers as a practical and concrete measure. He argued, "Historically, the Chinese government has been reluctant to provide direct fiscal support except to the extremely poor and has preferred infrastructure investment," adding, "Subsidies would certainly help kickstart consumption when incomes have not recovered after the pandemic spread." He further noted, "This could be combined with pro-natalist policies, showing the government's willingness to share wealth with the people, thereby boosting confidence."

Meanwhile, the National Bureau of Statistics of China is scheduled to release key economic indicators on the day, including second-quarter GDP growth rate, June industrial production, retail sales, and unemployment rate. The market expects the second-quarter GDP growth rate to reach 7%, but this is seen as a base effect from last year's Shanghai lockdown, with quarter-on-quarter growth expected to worsen.

This content was produced with the assistance of AI translation services.