Now Back To Our Regularly Scheduled Program; Doubting ‘Global Growth’

Has the Keynesian intellectual been able to re-assert himself with China’s economy once again on the brink of breaking down? Li Keqiang is nominally the Communist number two, but had seen his role curtailed after a 2015-2016 struggle with Xi Jinping. The issue was debt versus growth.

As a trained Economist, Li was responsible for the government’s early 2016 stimulus panic, which seems to have gone against Xi’s view of post-growth China. No more empty debt-binges; no more trying to grow a tree in the air. As I wrote last year in more detail about this rivalry:

In a lot of ways, that’s just what China’s 2016 stimulus panic allowed him to achieve. As the May 2016 article in the People’s Daily said, Xi’s side wasn’t at all convinced it would be effective. In a lot of ways, it sounded like a prediction intended to be date-stamped and referred to again for a future “I told you it wouldn’t work.”

It didn’t; the 2016 move ended up failing, as usual, with only a minor bump - which began to fade almost as soon as 2017 began (below). While Economists in the West were firing up the their actual printing presses, their bumper sticker-makers printing the slogan “globally synchronized growth” left and right, counting on an outsized Chinese contribution for it, Xi was increasingly sidelining Li for the lack of results.

By October 2017, the 19th Party Congress, the argument had already been settled. And while the eurodollar system received the message loud and clear, the Western media - because of its corrupt central bankers - failed to heed the warning. Euro$ #4 showed right where the inflationary breakout was supposed to be; where these latter were forecasting, as if globally synchronized growth had been real.

Chinese “stimulus” failed everyone.

Li, though, seems to have made something of a comeback, and that he has is significant. COVID-19 and the dire economic situation may have made his return inevitable, even though all signs point to a short leash (with Xi still gripping it tightly).

The Communists have just held their annual rubber-stamping convention, the so-called People’s Congress, in which Premiere Li announced there would be no GDP target this year for the first time in modern China. In its place is a somewhat restrained “stimulus” plan (by comparison to everywhere else), which appears to be something of a compromise between the two factions.

About RMB 3.6 to 4.0 trillion was promised, split up between various priorities (from tax cuts to local government aid, not just raw State-owned FAI), a lot of which to be financed by additional central government borrowing and approval on local levels. In a likely nod to Xi, Li warned the Congress, “governments at all levels must truly tighten their belt.”

The goal of all this debt is “stabilizing employment and ensuring living standards” rather than blanket waste as in the past, with the Premiere describing instead what looked like an employment target of at least 9 million new jobs. GDP will be whatever it is, but he wants the Chinese public to rest assured. Wonder why?

Altogether, this plan seems to indicate a high degree of caution on the part of Chinese authorities. Not quite “V” underlying its reasoning. As Li also said:

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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