China failed to sell itself at Davos. And how!

At the World Economic Forum, beleaguered China’s message to the world that it is still a bright spot, and its economy is in the right spot, did not cut much ice with investors. Premier Li Qiang made a strong effort, but Reuters reported that as soon as Chinese markets reopened the next day, a years-long sell-off in stocks and other assets further sped up. This happened despite official data confirming that Chinese economy grew at the expected rate last year. Reuters quoted Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis: “The news was not the data. It was Li Qiang in Davos. It was really underwhelming and bewildering. It doesn’t show confidence.” “To just give a number that everybody was expecting … it’s bewildering. Was there anything else?” According to Reuters, markets and investors were looking forward to some concrete plans for turning a corner: a clear roadmap for how China planned to resolve a deepening property crisis, a local government debt crunch, and how it planned to set right the imbalance between low demand and high investment. Several media reports have suggested that Chinese public is not ready to spend. Alfred Wu, associate professor at Lee Kuan Yew School of Public Policy in Singapore, as cited by Reuters, said one of the root causes is the concentration of power in President Xi Jinping’s third term, which creates hesitation at lower levels in making policy choices, as well as communicating with the public. “The information flow through the system has become very slow in Xi’s third term. The market started to worry, but no policies came out. And when policies were announced, they were too late,” Wu said. “As a market player, you have no idea what’s going to happen tomorrow. That’s a scary thing. At the end of the day, it’s confidence – people don’t believe the narrative.” The Shanghai and Shenzhen stock exchanges have seen $3 trillion of value wiped out since the end of 2021. Wednesday China cut down the Cash Reserve Ratio or the amount of money that banks can hold with them from next month, but that has not deterred questions about the economy’s near- and medium-term growth potential. “It’s one of the usual tricks the authorities resort to when they want to provide some support,” said Chris Scicluna, head of economic research at Daiwa Capital Markets. “It’s a welcome step, but it’s not going to be game-changer.” With inputs from agencies