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China’s economic growth slowed markedly in the fourth quarter of last year,prompting the government growth slowed markedly in the fourth quarter of last year,prompting the People’s Bank of China to cut interest rates and easing credit restrictions anew.Credit:Getty

Time for a reality check. This may come as a surprise,but China was the world’s second-worst performing stock market last year,ranking 58th out of 59,only marginally ahead of Pakistan - this despite seeming to have had a far better pandemic than virtually all Western counterparts.

The long-term picture scarcely looks any better. Over the past 30 years,Chinese stock markets as measured by the MSCI China Index have delivered a paltry 1.76 per cent annualised rate of return,compared to 7.47 per cent for emerging markets as a whole and 10.72 per cent for the US S&P 500.

Yet,China’s GDP has expanded by more than 30 times during that period,much more than any other emerging market and way,way ahead of the US. It cannot be stated often enough that the stock market is not the economy,especially when it comes to China,where investing in stocks and shares is essentially just a form of high stakes gambling. Even so,China’s relative lack of performance tells us quite a bit about the fault lines that lie behind the apparent economic miracle,and casts considerable doubt on its durability.

Overinvestment,poor standards of corporate governance and accountability,government expropriation,lack of legal protection,political corruption,unreliable reporting both of corporate profits and the wider economy,growing geopolitical tension with the West,the sabre rattling over Taiwan - it all tells its own story of a country which from an investment perspective still leaves an awful lot to be desired.

In a speech via videolink to the World Economic Forum annual meeting this week,Xi presented a confident and determined face to the world,insisting that China remained very much open to foreign business and investment.

Yet amid a series of crackdowns on fintech,private education,gaming,social media,celebrity culture and what are described in faintly homophobic terms as the “sissy boys” of “effeminate” fashion,it is increasingly hard to conclude that he means it. And that’s before we even get to the uproar over treatment of the Uyghurs and the suspension of democratic freedoms in Hong Kong,which was already giving Western business leaders plenty of pause for thought. From the outside,Xi’s “common prosperity” agenda looks like an ill-thought-through mess that far from bequeathing the alternative economic growth model he seeks threatens a destabilising inflection point that might ultimately bring him down,however unassailable his position now appears.

It is often said that China only excels when it looks outwards rather than inwards,an observation seemingly confirmed by the acute economic stagnation and decline of Maoist isolationism. Mao aspired to social equality,but delivered only the “equality of poverty”.

This grimly destructive period of introspection was brought to an end by the free market reforms of Deng Xiaoping,when China re-engaged with the rest of the world. A golden age of stellar economic growth duly followed. But it has left a difficult legacy of rising expectations,over investment,mountainous debt and undue reliance on a booming construction and real estate sector. In seeking to address these imbalances,Xi is again turning China in on itself,and in reverting to the Maoist tradition,clamping down hard on any supposed threat to his own leadership in the process;a more self-reliant egalitarian economy that places China at the forefront of technological innovation is promised in return.

China’s sharemarkets contonue to struggle.Credit:AP

It seems unlikely that this combination of rediscovered socialist intent and state-directed allocation of capital will succeed. By attempting to switch to a different kind of economy,Xi risks disappointing the expectation of never-ending growth which he himself has done so much to fuel,and thereby creating the very same economic and political instability he wishes to lance.

As it is,growth slowed markedly in the fourth quarter of last year,prompting the People’s Bank of China to again row back on attempts to quell the excesses of recent years,cutting interest rates and easing credit restrictions anew. It’s part of a pattern whereby every economic setback is met with another round of stimulus,further exaggerating the imbalances the high command wants to get rid of. There seems to be no other way of sustaining the growth.

Part of the current slowdown is admittedly cyclical. After the sharp rebound from COVID,things were eventually bound to come off the boil. The slowdown is also substantially self-inflicted. The regime has been particularly heavy-handed in its zero-tolerance approach to the spread of the latest,omicron COVID variant,sealing off cities and ports,closing roads and suspending air and rail links.

Disappointing levels of protection from homegrown vaccines have confined Beijing to the blunt instrument in tackling the disease of further economically damaging lockdown measures. Anything to avoid disrupting the Winter Olympics,scheduled to begin in a few weeks time and viewed by the regime as another opportunity to showcase Chinese ascendancy. The restrictions may therefore be somewhat eased after the event is over.

But it’s my guess that structural weaknesses in the Chinese economy and body politic are also starting to take their toll. That line of thought may of course be just wishful thinking on the part of another resentful Westerner keen to see a worryingly assertive China get its comeuppance.

A seriously underperforming stock market,on the other hand,powerfully suggests both that China’s economic miracle is not all it’s cracked up to be,and that its political hierarchy is not as secure as it seems.

Telegraph UK

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