Reform, not relief, for China

This report brings you insight and analysis from this week’s CNBC’s The China Connection bulletin about what directs the world’s second largest economy. Every week, we will discover the biggest business stories in China, decrease in market movements, and help you set up for next week. As you can see? You can subscribe Here.

Including the message of economists extremely sequential Peking UniversityGuanghua management school. Academics in Beijing’s best schools often share suggestions with policy makers.

The permanent decrease in prices does not need to be ignored, but they point out the need for more serious changes, as China has prepared the “15th 5th -year plan”. A national social and economic development plan for the period from 2026 to 2030. China completes its 14th plan this year and is expected to reveal details for the next five years.

Liu Qiao, Dean of the Guanghua School and a finance professor, told me last week, “When we talked about the 15th five -year plan, the basic issue is how to increase efficiency.” He said.

Without adding more labor or capital, it refers to the “Total Factor Productivity”, a measure of technology, innovation, scale economies or productivity gains from policies.

According to the International Monetary Fund, Total TFP growth of China In the 2000s, it fell from 4.1% to 2.6% in the 2010s, and since 2006, it became a decrease. Liu believes that China should grow at least 2% or more.

To this end, he said that technology innovation is an important part of the next five -year plan. However, he added that corporate reform is equally important.

The Chinese Communist Party’s understanding of states and institutions makes it more impact on the economy than the US.

“80% of China’s total factor productivity comes from corporate reform.” part of the idea The China Business News Magazine, which CNBC translated, is on Caixin. Zhou is the former vice president of the International Strategy Institute of the Central Party School, and is the Higher Education Institution for China’s educational party leaders.

Zhou pointed out that the definition of textbook as a way to increase the efficiency of technology is not necessarily implemented in China, where business and consumer interests are restricted in certain areas. “Without economic system reform, there will be no high -rapid growth.”

All of this may look more academic for the average market debate, more deflation, industrial excessive capacity and trade voltages. However, the public opinion debate in China is limited. In a country where leaders operate by creating a consensus behind closed doors, policy signals come from key statements and high -level conversations in government documents.

On July 1, Chinese President Xi Jinping pioneered a high -level Finance and Economic Commission meeting that wanted government officials to understand how their performances were evaluated. According to a state media reading.

“Routine evaluations [of officials] Not just focus on how much GDP has grown And the number of large projects, how much debt he owes, Xi Xi said at another high -level meeting that focuses on urban development this month.

According to Goldman Sachs, the existing system to assess the performance of government officials accidentally contributed to the extreme capacity problems that sectors produce more goods than the market could absorb the market.

Goldman Sachs Chief Chinese economist Hui Shan said on Monday that local authorities are encouraged to earn income even if the producers lose money under the current production -based tax system.

“Solving excessive capacity problems requires a different incentive structure for the evaluation and promotion of local authorities.”

“None of these basic regulations will not be easy or fast to implement.”

As China’s economic growth slowed in the last few years, Beijing stressed the need for “high quality” development. However, the country is still making a big deal from the annual GDP target, which is still 5% this year.

Liu from Guanghua said that when China looked forward, China would indicate a 4.5% to 5% lower growth target. However, what is more important in his opinion is that local authorities can focus on consumption rather than investments that contribute to excessive capacity problems.

Chinese authorities made plans to further support employment and Improving social welfare. However, the policy makers have so far avoided the mass cash notes of the US and Hong Kong to encourage residents to encourage expenditures after their pande.

In a month packaged for policy makers, senior party members are expected to hold a Politbburo meeting to discuss the economy by the end of the month. However, analysts do not have high expectations.

With the first half of the year in the books, the stimulus scale has already been set and the policy makers are now returning to the next five years, the former chief researcher of China Bank.

He expects policy makers to prioritize consumption on investment and direct the balance to the interests of businesses and stated that the state has played a greater role in the last five years.

However, Beijing warned that he would remain careful against risks that could be caused by relieving too much control.

Old habits can die hard.

Trina Chen, co -chairman of China Equity Research in Goldman Sachs, discussed China’s efforts to manage excessive capacity in the key sectors such as Sun, Steel and Lithium.

Atlantis Investment Management President Yang Liu said that negative views on the Chinese economy ignore the strong aspects of the country’s artificial intelligence and supply chains.

David Autor, a workers’ economist in MIT, said that the US does not fully understand the nature of the difficulty faced by China.

China goes after excessive discounts. Premier Li Qiang called more last week Electric car price war regulatory supervision. The market organizer later said on Friday JD.com, Meituan and Alibaba met and called them. rationally compete.

The US-China trade ceasefire was set to extend. US Treasury Secretary Scott Bessent said on Tuesday, when President Donald Trump met with Chinese colleagues in Stockholm next week will reveal an extension of the upcoming trade deadline with China.

Economic uncertainty continues. As the country continued to soften the weak consumer feeling and growth, China kept the comparison debt rates fixed on Monday. However, according to Oliver Wyman, the consulting firm, the richness of the country feels bad about the economy as much as during the pandemi.

Mainland China and Hong Kong stocks rose on Wednesday with a wider increase in the region, US President Donald Trump announced that it completed a “great agreement” with Japan. 15% tariffs in the country’s exports to the USA