By Raymond Chan 

China’s top policy makers gather in Beijing for the annual National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC) sessions every year. Especially during the Premier’s meeting with Chinese and foreign press, an important window has been opened up for understanding China’s strategies since the period of Zhu Rongji.

Chinese Premier Li Keqiang made no mention of “One Belt, One Road” (OBOR) in the press conference of this year, arousing a lot of speculations and has become journalists’ main concern. Reading through Premier Li Keqiang’s government work report carefully, it is found that OBOR was made a little mention and no progress was made in the thirteenth Five-Year Plan. Contrast with the explosive media coverage of the economic benefits of OBOR by the China’s official media last year, apparently in recent months, there has been no emphasis on the policy by the mainland China’s official but just only the Hong Kong government.

China’s cooling down the debate of OBOR

Wang Fuchong, Professor of Central University of Finance and Economics, believes the Chinese government has an intention to cool down the debate of OBOR. Wang thinks OBOR is a bad deal for China since the legislative systems, business mechanisms and integrities of the non-democratic countries along the Silk Road are believed to be problematic. Wang also stated the ancient Silk Road in China was closed most of the time and was opened for business for only a very short period of time. 

Of course, OBOR is not limited to the route of ancient Silk Road; however the fact is, other waterways and trade routes have long been controlled by the old forces for a century. It is not easy for China to plant flags; freedom of navigation in the South China Sea is the best example, which is also one of the root causes of South China Sea issue. Controlling the trade routes is to control the economic lifeline of its country and so as that of the others.

Therefore, areas along the route was indeed the China’ original focuses; yet, if the route is feasible, the former Soviet Union and Russia would have successfully open it up. There exist historical reasons why the areas are not playing any role in international trade until now.

Dominated trade routes are not easy to break through

Cooperation between China and Central Asian countries is not something new. Numerous countries of the Silk Road on land, such as Kazakhstan, Kyrgyzstan and Tajikistan, have already been cooperating with Shanghai government. However, opening up trade routes and developing trading relationships are not merely about investing money. In addition to hardware and facilities, it also depends on whether the locals are willing to follow and whether the foreign exchange and financial systems are healthy enough to tie in with the international standards. When doing business with Americans, British or Japanese, one can always follow the international regulations; but doing business with Central Asian countries can lead to a lot of challenges that may violate the international standards. Indeed, the degree of difficulty is beyond words. 

Chinese Premier Li Keqiang made no mention of OBOR in the press conference of this year. Does it mean the Chinese government is trying to cool it down? Due to the lack of transparency in China, it is just a presumption. In the meantime, I would like to remind everyone, China’s economy trends depend entirely on politics.

To make a brief summary, the latest situation is reflecting China’ new attitude: tightening forex market, internals come first.

“Tightening” policies are in fact loosening policies

Premier Li announced an economic growth target of between 6.5% and 7% for 2016, from a single targeted number to a margin. The range seems to be very impressive; however, China’s economy is still full of uncertainties and anxieties and hence this goal is impossibly achievable in the absence of stimulus measures while the Chinese government should not continue to rely on heavy stimulus measures.

The RMB 10 trillion stimulus package in 2009 had led to severe setbacks and indebtedness. This plan should not be implemented for the second time, yet still, another RMB 10 trillion plan had been approved last year and 7 trillion RMB will be pumped into China’s economy this year, Bloomberg reports.

The targeted budget deficit will be 3% of gross domestic product this year, up from 2.3% in 2015, according to Premier Li’s report. The M2 broad money-supply target is raised to 13% this year from 12% in 2015. Also, Chinese banks armed with fresh lending quotas extended a record 2.51 trillion RMB of new loans in January, reaching a record high.

The worrying property bubbles in China

In China, a debt-ridden country in both public and private sectors, the credit growth in terms of interest rate was doubled. A further appreciation of property value, particularly in the major cities, is inevitable. Since 2008, property prices have risen 346%, 157% and 145% in Shenzhen, Beijing and Shanghai respectively. Particularly in Shenzhen, an annual increase of 53% was recorded last year. It is impossible to bear such a rapid growth in property market, even for the healthiest economies. 

China’s property market is twofold: short supplies and bubble-high prices in first-tier cities and second-tier cities, and excess supplies in other cities. Domestic investment options are limited in China. Funds obtained through bank loans tended to flow into the stock market. However after the stock market crash, funds are flushing into the property markets, especially in Shenzhen, Shanghai, Beijing and Sanya. 

Under such circumstances, it does not seem realistic to stimulate economic growth without increasing the risk of bursting of bubbles.

When analysts continue to emphasise China’s economic transformation is a success, I would like to clearly make my state that the transformation will not be achieved within a short period of time. Firstly, the total amount is too large. Secondly, coal miners will not become programmers just in one night. The recent riot initiated by coal miners in Heilongjiang has reflected the difficulties in this transition period. As I mentioned earlier, have a quick look in China, and you will find the recession of northeast provinces, once China’s industrial base, very obvious.

There is no never-fall-market. China’ real estate market growth will cease one day, otherwise, China will have the ability to purchase any country in the world.

An economic downturn or recession is a normal adjustment for every economy after a boom; this is the economic rule remaining unchanged for centuries. During the economic recession in Australia in 1990s, former Prime Minister Paul Keating said, “this is a recession that Australia had to have.” I am not trying to assert the economic decline in China, but at least, I think it requires a soft landing rather than plenty of stimulus plans. On one hand, the government put much emphasis on deleveraging; while on the other hand, launching the RMB 10 trillion stimulus package. The so-called tightening policies are in fact loosening policies.

China’s economic policies sometimes are not necessarily driven by economic purpose, which most western analysts do not see.