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Be Happy – Or Else

Xi Jinping and Peng Liyuan waving from the door of an airplane
Chinese President Xi Jinping on a visit to South Africa in late 2015.
Photo by DIRCO, courtesy the South African Government Online via Flickr.

To maintain its position as the world’s fastest-growing major economy, China has hit on a novel and seemingly effective policy. Call it, “Don’t worry, be happy – or else.”

Notice I said “seemingly effective.” Any policy can seem effective when you bury all contrary evidence, and maybe some of the people producing that evidence too.

Markets showing a deteriorating economy? Manipulate the markets. Or close them. When those steps backfire, reopen them but tell the press not to report any bad news. When analysts and economists divine the bad news anyway, tell them to stop saying negative stuff. Just parrot the party line: Don’t worry, be happy. Everyone in China knows, or can guess, what happens to those who do otherwise.

Last fall, business reporter Wang Xiaolu served as a prime example. Wang had the temerity to report a story about the China Securities and Regulatory Commission that, while true, created public concern about the state of the stock market. For his trouble, Wang was arrested and punished for “spreading rumors.” And, just to make sure everyone got the message, Chinese authorities aired his subsequent “confession” to wrongdoing on state TV.

Yet the government’s crackdown on pessimism, or even realism, did not stop there. Last week, The Wall Street Journal reported that authorities are issuing verbal warnings not only to business reporters, but also to economists and industry analysts who have made remarks that are less aggressively upbeat than the party line.

Lin Caiyi, an economist who has spoken out about the dangers of rising corporate debt, a saturated housing market and the weakening yuan, received two such warnings: one from the nation’s securities regulator and one from her state-owned employer’s compliance department. Journalists at state-owned news outlets received word that they needed to “tell China’s stories well.” This means not only avoiding negative stories, but proactively creating positive ones to further the government’s reassurances that every aspect of China’s economy is thriving.

Not only are experts subject to the government’s rosy-colored economic narrative, they must contend with increasing crackdowns on China’s already murky information reporting practices. For example, China’s central bank stopped releasing data in February on foreign-exchange purchases by commercial banks. The offered reason? The data were “no longer a true reflection of China’s capital flows.” Why let the truth get in the way of the truth?

This trend may be growing more acute, but it is nothing new. I have written before about the many good reasons for outsiders to be skeptical of China’s government-controlled economic information. Earlier this year, Anne Stevenson-Yang of J Capital Research told The New York Times that her firm had observed growing discrepancies in China’s official data over the course of the last two years, including in reports pertaining to retail, shipping and steel production.

China is, of course, a very big country, and it has a very big economy – just not as big or as vigorous as its government wants everyone to believe. The difference, which escaped the International Monetary Fund when it made China’s currency part of the world reserve system last year, is in knowing how to behave the way a major economy has to behave if anyone is to have any faith in it. The Chinese authorities have no idea and even less interest in that sort of above-board behavior. To them, government policy is all about preserving personal power and privilege.

We have had instances in which we tried to muzzle the messenger here in the U.S., too, but we don’t have the totalitarian state infrastructure to pull it off very well. That is why people my age still remember when President Jimmy Carter’s administration tried to stop Alfred Kahn from predicting a depression if inflation were not brought under control. Kahn stopped predicting a depression, but he just substituted the word “banana” instead. (And when the banana industry objected, he switched to “kumquat.” Apparently the kumquat lobby was pretty useless in Washington back in the ‘70s.)

China can try to hide the truth, and it can persecute its few citizens brave enough to seek and tell it despite the risks. But China can’t change the truth. Until it is willing to confront reality, it will never deserve to be seen as a major economy and a suitable home for substantial business investment.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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