Listen now | China’s July Politburo meeting is always a big one, as the leadership takes stock of the economy and signals policy adjustments for the second half of the year.
Why does Xi Jinping emphasize so such on extraordinary strategic patience（战略定力）? Because China has only one credible path forward: technological progress and industrial upgrading.
Andrew’s assessment is exactly right. China has chosen to endure the pain of the property adjustment because its leadership has no intention of returning to the old growth model built on real estate, infrastructure construction and debt-fuelled expansion.
The historical lessons from large-scale stimulus are too serious to ignore. The RMB 4 trillion infrastructure package launched in 2009 contributed to an explosion in local-government debt for 10 years. The property stimulus introduced in 2016 droved a doubling housing prices in 5 years. America’s helicopter-money response in 2020 produced 30% cumulative inflation over 5 years.
This explains the current policy framework.
First, China is unlikely to rely on aggressive interest-rate cuts or broad reductions in reserve requirements. It will increasingly favour structural monetary tools that channel subsidised credit towards green industries, advanced manufacturing and technological innovation.
Second, fiscal policy will provide a floor under the economy without producing a dramatic expansion of the deficit. The priority will be to restructure local-government debt and direct public investment towards productivity-enhancing infrastructure, including the proposed “six networks.”
The only credible route forward is sustained industrial upgrading until the expansion of the new growth engines decisively outweighs the contraction of the old ones. South Korea’s experience over the past two decades has demonstrated the viability of this path: when property and traditional construction can no longer carry the economy, technological upgrading, advanced manufacturing and exports must do more of the work.
This strategy has three major implications:
China’s economic adjustment will take much longer.
Beijing’s commitment to export competitiveness and industrial upgrading will remain exceptionally strong.
Western demands for a one-off, large-scale renminbi appreciation or politically imposed restrictions on China’s export capacity have virtually no chance of being accepted.
For Beijing, those demands would amount to abandoning the only development strategy it considers capable of carrying China through the property downturn.
There is another critically important consideration: until China has completely broken through the West’s technological blockade, it will never abandon technological self-reliance as its highest strategic priority.
Why does Xi Jinping emphasize so such on extraordinary strategic patience（战略定力）? Because China has only one credible path forward: technological progress and industrial upgrading.
Andrew’s assessment is exactly right. China has chosen to endure the pain of the property adjustment because its leadership has no intention of returning to the old growth model built on real estate, infrastructure construction and debt-fuelled expansion.
The historical lessons from large-scale stimulus are too serious to ignore. The RMB 4 trillion infrastructure package launched in 2009 contributed to an explosion in local-government debt for 10 years. The property stimulus introduced in 2016 droved a doubling housing prices in 5 years. America’s helicopter-money response in 2020 produced 30% cumulative inflation over 5 years.
This explains the current policy framework.
First, China is unlikely to rely on aggressive interest-rate cuts or broad reductions in reserve requirements. It will increasingly favour structural monetary tools that channel subsidised credit towards green industries, advanced manufacturing and technological innovation.
Second, fiscal policy will provide a floor under the economy without producing a dramatic expansion of the deficit. The priority will be to restructure local-government debt and direct public investment towards productivity-enhancing infrastructure, including the proposed “six networks.”
The only credible route forward is sustained industrial upgrading until the expansion of the new growth engines decisively outweighs the contraction of the old ones. South Korea’s experience over the past two decades has demonstrated the viability of this path: when property and traditional construction can no longer carry the economy, technological upgrading, advanced manufacturing and exports must do more of the work.
This strategy has three major implications:
China’s economic adjustment will take much longer.
Beijing’s commitment to export competitiveness and industrial upgrading will remain exceptionally strong.
Western demands for a one-off, large-scale renminbi appreciation or politically imposed restrictions on China’s export capacity have virtually no chance of being accepted.
For Beijing, those demands would amount to abandoning the only development strategy it considers capable of carrying China through the property downturn.
There is another critically important consideration: until China has completely broken through the West’s technological blockade, it will never abandon technological self-reliance as its highest strategic priority.