David Brown

Macroscope | It’s time for China to be honest about the poor shape of its economy

The comforting numbers, rose-tinted projections and all-round positive spin that Beijing has been feeding the public have to stop. The Chinese economy is in trouble and policymakers must take radical action to stop the rot

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Pedestrians in Beijing. China may be hoping for an early breakthrough on a trade settlement with Washington, but this misses the point. It is the domestic economy that is most at risk and where more of China’s attention is needed. Photo: Bloomberg

David Brown

Published: 7:00am, 19 Feb 2019Updated: 12:36pm, 7 Mar 2019

The truth is out there – all Beijing needs is a clearer picture about China’s future potential and how to achieve it, with so much impending uncertainty. Officials still seem confident economic growth can come in at around the 6 per cent mark this year, although real data trends suggest otherwise. China’s economy is slowing quite dramatically and the government should be quick to admit it.

Beijing seems long on hype and short on reality about what’s really happening to growth. The global economy has taken a hard knock, thanks to the US-China trade war, and a greater shock is on the cards unless the row is resolved soon. World trade flows are slowing, growth expectations are suffering and financial markets are rattled. Beijing still has a chance to put things right and stay ahead of the game, but only with the right policies in place.

China’s economy is crying out for brave management and a bold action plan. It’s no use Beijing beating around the bush with policy half-measures. Beijing needs barnstorming economic stimulus with more tax cuts, deficit spending and monetary easing than has been the case so far. But it needs better understanding about past, present and future trends on which to base its decisions.

Government forecasters should be brutally honest about the economy’s loss of momentum. It is pointless putting on a positive spin, leaving policymakers struggling to make do with ill-defined, rose-tinted projections. Beijing needs to understand all the contingent risks. If future gross domestic product simulations are centred on a 4-to-5 per cent range this year, it is cause for alarm. If 2-to-3 per cent GDP growth is on the cards this year, the government should hit the panic button.

Pumping out middle-of-the-road forecasts for 6-to-6.5 per cent growth for 2019 is nothing less than counterproductive. Beijing should rid itself of any notion of near-term stabilisation without radical intervention. China’s growth rate has been on a slippery slope for the past eight years, with no end in sight. Growth has fallen sharply from a post-crash peak of 12.2 per cent in early 2010 to 6.4 per cent at the end of last year. The negative trend looks set to extend.