World Views | China’s policy flip-flops are scaring investors

The Chinese public was caught off-guard Monday when Wuhan, the epicenter of the coronavirus outbreak, said it would ease a sweeping lockdown on the city, only to retract it hours later. This policy flip-flop isn’t just unsettling. It raises the question of whether President Xi Jinping is capable of handling a global health and economic crisis.
Granted, China’s political brass have been on steroids in recent weeks, meeting often and issuing frequent statements. In the last month alone, Xi and the Politburo Standing Committee — which consists of the country’s top leadership — have met four times, each concluding with a speech by the president. This level of engagement is extremely rare.
The question is: What kind of message is getting delivered to local officials from Xi’s high-level and vaguely worded speeches?
From the latest communication, bureaucrats and investors alike may well believe that stable economic growth is front-and-center again. Xi devoted six paragraphs of his Feb. 23 speech, or 914 words, to the economy, compared with three paragraphs and 701 words to the virus. Unlike earlier meetings, politicians didn’t wear masks, a show of confidence that the worst of the outbreak is behind us.
By Monday morning, six provinces lowered their virus alert levels, a move that signaled freer labor migration. This came as China’s economy remained at a standstill amid municipal officials’ draconian quarantine measures. As of Friday, only large businesses in the relatively virus-lite eastern provinces saw half of their workers return, while smaller enterprises and inland China lagged behind, the government said in a briefing.
Against that backdrop, it’s possible that Wuhan’s misstep came down to crossed wires. Somewhere along the chain of command, the instructions were misinterpreted.
This certainly wouldn’t be the first time. In late 2018, a few third-tier cities felt emboldened to ease their housing-price controls, after a pro-growth agenda emerged at a key national economic meeting. Within a day, officials were forced to reverse their stance because they didn’t understand the “complexity” of Beijing’s top directives.
And who can blame them? Xi’s words often run at odds with those of Beijing’s own technocrats. Last weekend, when he called for “even more” flexible monetary policies, the People’s Bank of China took a more measured tone. In an op-ed for the Financial Times, Deputy Governor Chen Yulu said the central bank saw a V-shaped rebound as the most likely scenario. He made no mention of reserve ratio cuts, which are being widely priced in by investors.
If history is any guide, Xi’s word is the last word. Central bankers and finance ministers are just the messengers who sometimes don’t get the instructions quite right.
To be sure, hazy wording can give local governments room to interpret national policies to their own advantage. In Xi’s China, municipals are perpetually short of cash. Even Wuhan, a vibrant college town and tech hub, needed commercial activities and good jobs to fill its pension fund shortfall. So it makes sense officials would want to get businesses up and running again.
So far, traders have largely placed their faith with Xi. Last week, the blue-chip CSI 300 Index recouped all of its losses since the prolonged Lunar New Year break, while the new economy-focused ChiNext Index notched a three-year high. As I’ve noted, this rally was largely thanks to Xi’s Feb. 3 speech, in which he insisted on delivering this year’s economic growth targets. This was widely seen as a prelude to a big stimulus.
But these lower-level flip-flops are concerning. Investors may be able to stomach the death toll, now at more than 2,600, or that China is sacrificing a whole province to contain the spread. But at a time of international emergency, we can’t have policy U-turns. That’s the downside of having an enigmatic political leader who has anointed himself president for life. Shuli Ren, Bloomberg