Robin Xing, chief China economist at Morgan Stanley, keeps a close eye on the Chinese economy’s progress and trade tensions with the United States. In the latest instalment of the Open Questions series, he talks about Beijing’s emphasis on technological innovation at the just concluded “two sessions”, the shape of stimulus packages, the return of animal spirits following efforts to boost the private economy, and the Trump trade war 2.0.
We have heard more good news about China in the past three weeks than probably in the previous three to four years. Investors’ perceptions about China have changed recently and some are arguing Chinese assets are becoming investible again. What’s your view on this change of sentiment? You are known for your optimistic take on China. Where does your confidence come from?
I would say that since the policy pivot in September, we have been focusing on how to measure and quantify the progress of China’s reflation. There are three steps, the three Rs: restructuring debt, rebalancing towards consumption, and reforms to improve confidence.
Before the September pivot, the progress had been quite slow. The deflationary pressures had deepened since March/April 2023, so, for more than a year, this reflation process was relatively slow, but things have definitely accelerated since September last year.
Firstly, there was the debt-swap programme for local governments and housing relief, and then there was consumption stimulus. Though relatively modest, at least they had started to put forward initiatives on the consumer and social benefits aspects. Most recently, there was also the symposium between top leaders and private sector representatives.
I think all of these mean that the progress on reflation has accelerated. We use the three Rs to quantify the progress every month. Right now, we reckon it is probably at 50 per cent, while before September it was only 20 per cent.
