Sometimes it's what you don't say that counts.
China is waving the white flag when it comes to hitting its growth target of "around 5.5%" for the economy this year, sending share prices rapidly south in Asian trade.
A top-level meeting of the Politburo Thursday dropped its previous reference that the country and its provinces should work hard to hit 5.5% growth this year, a target established at an agenda-setting meeting in March.
Coupled with a frosty phone call in which Chinese President Xi Jinping warned counterpart Joe Biden not to "play with fire" over Taiwan's status as a nation, the growth-target rollback means there are plenty of doubts swirling about the strength of the Chinese economy heading toward the end of the year.
Hong Kong sold off particularly harshly in late trade, with the Hang Seng Index ending the day down 2.3%. The CSI 300 of the largest mainland-listed companies fell 1.3%.
That was out of synch with a generally positive day's trade in Asia on Friday. Australia, New Zealand, India, South Korea and Taiwan all posted gains, following through on Wall Street's Thursday advance. Tokyo stocks, however, slid, with the Topix down 0.4% as the yen strengthened against the U.S. dollar. After months of weakness that benefits Japanese exporters, the yen has come off its low of ¥139 to the U.S. dollar set July 14, and now stands at ¥133.23.
There was no mention of the 5.5% growth target at the meeting in Beijing of the Politburo, the top decision-making body of the Chinese Communist Party. Instead, provinces should "strive for the best possible outcome," the Politburo determined, according to the state news agency Xinhua. The economy grew only 2.5% in the first half of the year.
The fight against Covid-19 prevention was instead given top billing, indicating that the party is aware that its insistence on a zero-Covid policy is holding back the economy. China is the only major economy still attempting to wipe out Covid, rather than living with an endemic but manageable disease.
China's economic performance is "facing some prominent challenges," the Politburo conceded. Those are principally of Beijing's own doing, since the need to shut down Shanghai totally for two months has led into a series of rolling lockdowns around the country that drastically hamper movement and the operation of freight, ports and factories.
Still, the Politburo stressed the importance of "unswervingly adhering" to what it calls a "dynamic zero-Covid policy," with the body warning against "slackness and weariness" in combatting the disease.
Abandoning the target of "around 5.5%" suggests that the Beijing administration is less likely to unveil large-scale stimulus measures to prop up the economy. Such spending and financial guarantees in areas such as property lending would have certainly stimulated stocks.
The Politburo urged efforts to "consolidate the upward trend of economic recovery," as well as to keep "employment and prices stable," and "keep the economy running with an appropriate range."
Since the anti-Covid efforts work directly against those kinds of efforts, the Politburo appears to be saying "Just do your best, we know we aren't exactly helping." But the zero-Covid policy is likely to be in place at least until President Xi Jinping wins a likely third term at a once-in-five-years political reshuffle due to happen in October or November.
"A comprehensive, systematic, long-term and, in particular, political perspective should be used to view the relationship between Covid-19 prevention and control and economic and social development," the meeting stressed.
No, I don't know what that means, either. It's kind of, "We're watching the economy, sure, but we've also got this Covid thing, which is important to the Big Guy. So just bear with us."
Xi has made tackling Covid a top priority, and a central part of his platform for reelection. Although it's practically a given he will be reelected to a third term, having changed the rules so he can essentially remain in power forever, Xi must still corral the competing cliques within the Chinese Communist Party. He has done his best to eliminate all rivals, but has alienated the moderate and reform-minded elements within his party by cutting China off internationally and pushing Maoist-style business reform in the name of "common prosperity."
It would look weak to abandon the Covid-elimination quest now, particularly when so many citizens -- by some counts, one-third of the population at a time -- have faced severe curbs on their behavior and activity. Communist officials have at times barricaded citizens inside their homes to prevent them from spreading Covid, while Shanghai residents often complained of a lack of basic necessities such as food while cooped up at home for two months.
Western nations have been able to progress to a "live with Covid" policy because vaccination rates are high -- and the vaccines are effective. China has refused to import foreign-made vaccines, purely for political reasons. But it does not have a homegrown mRNA vaccine, and overseas tests showed at best 50% efficacy for the China-made vaccines, made the old-fashioned way with denatured or dead virus cells.
It is likely that China is therefore maintaining the zero-Covid push because it knows its vaccines would provide little protection against the latest strains of Covid. Any large-scale outbreak would push the health-care system to or past breaking point, with facilities particularly lacking outside the largest cities. Current hospitalization rates are very low in the West despite recent surges in Covid infection. Most of China, on the other hand, hasn't yet developed any kind of infection-generated immunity.
The 25-member Politburo promised support for troubled sectors such as housing as well as for its regional banks, which are contending with a mortgage strike by homebuyers who have put down deposits on unfinished units. The meeting "called for work to ensure the real-estate market remains stable," while reiterating the Xi mantra that "houses are for living in, not speculation." Home prices have gone into reverse, and sales are plunging, leading the Politburo to say it will maintain stability in the financial system and "properly defuse risks within certain local rural banks."
Both Xi and Premier Li Keqiang have recently used language stating that China will "strive for relatively good results" for its economy for the rest of the year. The confidence is lukewarm at best.
The conversation was more heated when Xi and Biden spoke, "at the request of the latter," as Xinhua is keen to point out.
The call has taken on a greater significance with Speaker of the House Nancy Pelosi reportedly planning a trip to Taiwan, the highest-level visit since House Speaker Newt Gingrich made the same trip in 1997. Politicians on both sides of the aisle say they've been invited by Pelosi to accompany her on the trip, the first official confirmation it's in the works.
Xi warned that China's position on Taiwan is "consistent," and backed by the "firm will" of more than 1.4 billion Chinese people. "The will of the people cannot be defied, and those who play with fire will perish by it," Xi told Biden, according to Xinhua.
China has warned there will be "consequences" if Pelosi visits Taiwan. That's sufficiently vague and threatening. Again, it's what you don't say that matters.
Biden, who is thought not to favor Pelosi's visit, stressed that the United States and China have managed their differences over Taiwan for the last 40 years, and should continue to do so. Biden has previously said the United States would defend Taiwan if China attacks it, thought to be a higher possibility now than at any recent point in history -- not least because invading Taiwan would present Xi with a distraction away from the weak economy. But on the call, he stressed that U.S. policy on Taiwan remains unchanged.
The White House notes the call "was substantive, it was in-depth, and it was candid," over the course of 2 hours 20 minutes, tackling three main areas: Taiwan; the Ukraine war; and areas of cooperation, on climate change, health security and drug trafficking.
It's the fifth time the two men have spoken since Biden took office. The two men told their teams to look into a "mutually agreeable" time to meet in person.
While Biden's economic team is looking at whether to ease some of the Trump-era trade tariffs slapped on Chinese goods, no specifics came up in the call. Instead, Biden stressed his concern over unfair economic practices by China, and the need to protect American workers.
