Local Chinese residents walk on a flooded street in heavy rain in Wuhan, central China, on July 6 2016. (Wang He/Getty Images)Local Chinese residents walk on a flooded street in heavy rain in Wuhan, central China, on July 6 2016. (Wang He/Getty Images)

Chinese president Xi Jinping seldom comments directly on the economy. Instead, he lets his premier Li Keqiang do the talking. Or Xi speaks through one of the regime’s mouthpieces like People’s Daily or Xinhua.

On July 21—only one week after China published unexciting GDP figures—it was Xinhua who came out with a commentary on how important reform is for China and that there is no alternative to short-term pain and long-term gain.

“China must push through reform, for there is no plan B,” the mouthpiece states.

The article is just a Xinhua commentary and didn’t cite an “authoritative person” like the People’s Daily usually does, but given the amount of control Xi personally exerts over the media, it probably had his blessing. 

Piecemeal solutions no longer work.

—  Xinhua

The article espouses the reform narrative we have heard previously: market reform, sustainable growth model, innovation, consumer spending, supply-side structural reform, cutting red tape etc. So we can assume that Xi and his premier still stand behind the reform agenda.

“What is called for is not temporary fixes: My government has resisted the temptations of quantitative easing and competitive currency devaluation. Instead, we choose structural reform,” Xinhua quotes premier Li Keqiang. 

Reality Check

The problem, as it is the case so many times with Chinese media and utterances from the Communist Party, is that the claims don’t reflect reality.

With respect to temporary fixes, China just created a record amount of credit in the first quarter, amounting to $712 billion in new loans. These loans did not go into the private sector as Li claims but broadly speaking boosted investment by state enterprises.

Chinese ship-builders, for example, reported a surge in orders by volume of 44.7 percent from January to June this year compared to last year. Private investment on the other hand only grew 3.9 percent in the second quarter of 2016, whereas total investment rose 9.6 percent.

“State Owned Enterprises (SOE) continue to invest in the overcapacity industries, which suffer from slower growth in production,” writes the investment bank Natixis in a note.

However, judging from the Xinhua piece and others before, the regime clearly recognizes the problems: “Problems facing China’s economy, including a troubled property sector, industrial overcapacity, rising debt levels and the lack of new growth engines, are all connected with each other and piecemeal solutions no longer work. The only way to restore vitality to the economy is to push through reforms.” They aren’t happening.

Instead, central bank officials are calling for fiscal deficits of up to 5 percent to support the economy and they admit traditional monetary stimulus is not working anymore. 

“Despite loads of liquidity pumped into the market, enterprises would rather bank the money in current accounts in the absence of good investment options, which is in line with record low private investment data,” Sheng Songcheng, head of statistics and analysis at the People’s Bank of China (PBOC) said recently.

You can have a good old financial crisis without having the 1997–1998 Asian foreign debt issue.

— Willem Buiter, Citigroup

Willem Buiter, the chief economist of Citigroup says China needs to recapitalize the banks and go through a round of central bank financed deficits to clear up past excesses. He thinks China won’t avoid a financial crisis otherwise:

“Unless they are willing to go for Chinese helicopter money, fiscal stimulus targeted mainly at consumption not at investment. Yes, some capital expenditure like social housing, affordable housing, yes, even some infrastructure. But organization supporting infrastructure, not high-speed trains in Tibet. It has to be funded by the central government, the only entity with deep pockets, and it has to be monetized by the People’s Bank of China.”

Debt Semantics

Speaking about debt and a financial crisis, naturally, Xinhua has a differing view: “Most of China’s debts are domestic, and its debt levels are within control and lower than other major economies. A moderate deficit level (2.4 percent in 2015 and a target of 3 percent for 2016), large household savings and massive foreign exchange reserves strengthen the country’s ability to endure risk.”

Forget about the fact that central bank officials are already calling for a 5 percent deficit, Standard and Poors just released a report warning about China’s dangerously high debt levels. “The downside risks are material, especially if Chinese authorities lose their grip on rebalancing the economy,” it states. 

china debt

Foreign exchange reserves have decreased from $4 trillion in 2014 to $3.2 trillion now. Hedge fund managers like Kyle Bass of Hayman Capital think the crisis threshold is at around $2.5 trillion. 

“They are so far ahead of the world’s excesses in prior crises, we are facing the largest macro imbalance in world history,” he told RealVisionTV.  

Willem Buiter says the debate of external versus internal debt is largely meaningless: “You can have a good old financial crisis without having the 1997–1998 Asian foreign debt issue.” 

Both Kyle Bass and Buiter see a further devaluation of the Chinese currency as highly likely. “The Chinese government wants a devaluation, they just want it on their terms. In the next two years, this is happening,” says Bass.  

One thing Xinhua gets right: The days of double-digit growth are over. “To be sure, China’s economy cannot, and should not, repeat its past growth record. It may be on a bumpy journey, but will maintain a slower, but stable growth.” Which is the best the country can hope for. 

Follow Valentin on Twitter: @vxschmid

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The Chinese regime’s main mouthpiece has been passing off propaganda pieces as serious news items since time immemorial. Finally, like the boy who cried wolf, nobody believes that the propagandists could actually be joking on April Fools’ Day.
“April Fools’ Day doesn’t correspond with China’s traditional culture and core socialist values,” wrote Xinhua News Agency on its official Sina Weibo microblog account in the morning of April 1.
“Hopefully everyone won’t believe, create or spread rumors,” the Weibo post continued, and ended with a smiley face emoticon.
Prominent publications like the New York Times (“No April Fooling Please, We’re Chinese), the Washington Post (“No joke. April Fools’ Day has been banned in China”), and Newsweek (“China Bans April Fools’ Day And Warns Nations Not To Spread Rumors”) ran stories which suggested that they considered Xinhua’s message more warning than joke.
And it’s an easy conclusion to reach. After all, Xinhua has a reputation for rigid reporting, and running no-nonsense propaganda pieces inflated with standard Communist Party jargon and ideological messages. The Chinese regime has also continually stressed the need for the Chinese population to steer clear from Western ideals and values—during a recently concluded annual political concave, Li Xiusong, a representative of China’s political advisory body, cautioned Chinese parents against bringing their children to the new Shanghai Disneyland because children could end up “embracing western culture as grownups.”
However, a semi-official Chinese news outlet appears to have caught on that Xinhua could be pranking the West as payback for earlier humiliations.
“On first reaction, it seems like the work of hackers, because that’s clearly the sort of joke that websites like the Onion would come up with,” wrote Beijing News, a semi-official publication, in an article entitled “Don’t Try To Guide Public Opinion on April Fools’ Day” that was posted to its official WeChat account.
“Having a ‘fight’ with the Onion on April Fools’ Day is not unacceptable, and it is in fact very necessary.”
Beijing News is referring to an incident in 2012 when the People’s Daily, another prominent state media, mistook a report on North Korean leader Kim Jong Un by the satirical website The Onion as genuine news. To commemorate Kim Jong Un winning a fictitious poll for the “sexiest man alive in 2012,” People’s Daily ran a 55-page photo feature and quoted The Onion that “this Pyongyang-bred heartthrob is every woman’s dream come true.”
“People have the right to celebrate a holiday. And it is their freedom to decide which day they want to let out a hearty laugh. April Fools’ Day might not be listed as traditional culture in our textbooks, but its entertainment value is universal,” Beijing News concluded.  
The Xinhua Weibo post was widely shared on the Chinese Internet and remarked on. A good number of netizens felt that Xinhua was playing an April Fools’ Day prank. Many others pointed out that the state mouthpiece has been playing Chinese citizens for fools since its inception.
“Hey—I am Strawberry” from Guangdong wrote on Weibo: “Xinhua fabricates news on a daily basis. Yet you pretend to be all righteous on April Fools’ Day?”
“To make a fool of your friends, that’s joking around; to fool strangers for their money, that’s scamming; and to make a fool of everyone in the country, that’s Xinwen Lianbo,” wrote “Barca Xiaofeng” from Liaoning. Xinwen Lianbo is the most watched and heavily controlled news program in China.
Qu Limin, an assistant professor from the Beijing University of Chinese Medicine, wrote: “How is common folk entertainment the business of the government?”

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China wants nothing to do with April Fool’s Day—and its Western cultural influences.
The state’s news agency, Xinhua, announced on its official microblog on April 1 that the practical joke day does not follow Chinese cultural traditions or “socialist core values.”
The call is part of a move from the regime through official newspapers and state run CCTV to rid the nation of Western cultural influences, which threaten its political views. Influences include basic human rights and freedom of speech.
“‘April Fools’ Day’ is not consistent with our cultural tradition, or socialist core values,” state news agency Xinhua said, according to the Washington Post.
“Hope nobody believes in rumors, makes rumors, or spreads rumors,” added Xinhua.
However, the announcement was a joke on officials.
Social media users immediately went on platforms to make fun of the call.
“Watch CCTV news, have China’s April Fools’ Day,” posted one user, according to the Washington Post.
“In the West, it’s only for a day, but a certain (TV) station is fooling 365 days non-stop,” another user posted.
Meanwhile, another user suggested that China should use April Fool’s Day for opposite reasons.
“Today is April Fools’ Day in the West when you can publicly lie and not be punished. Why don’t we do the opposite and make this day ‘truth telling day’?” another wrote on social media, reported the Washington Post.
“Hopefully today we can speak the truth, express our true feelings, show our true colors, spread the truth without being restricted or punished, without getting blacklisted as inciting crime,” added the user.
The Associated Press contributed to this report. 

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  • Author: <a href="http://www.theepochtimes.com/n3/author/denisse-moreno/" rel="author">Denisse Moreno</a>, <a href="http://www.theepochtimes.com/" title="Epoch Times" rel="publisher">Epoch Times</a>
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