China's learning curve for expectation management - Week in Review #31
When can China communicate better to the capital market?
This is the remarkable “pressers” week, when 2 impactful, minister-level press conferences took place. Unlike the abysmal NDRC press conference that sent the market into a major sell-off on Tuesday, the Ministry of Finance (MoF) presser, presided over by Minister Lan Fo’an, was not a failure.
Yesterday, immediately before the MoF presser, I analyzed and made predictions for Baiguan’s paying subscribers about what to expect. I’d say my predictions turn out to be 95% true. Today, we are making that article free for all subscribers.
[I noticed that recently many of you have paid for subscriptions at both Baiguan and China Translated. I really appreciate this, but I need to remind you again I offer free access to this newsletter for all paying members of Baiguan. Please come to me for a refund if you have unwittingly double-spent. Comment below if you also want the Substack team
could make bundling options happen!!]What’s hanging in my head for a great part of this week, though, is a question I left unanswered when I tried to contextualize the abysmal NDRC presser earlier this week.
My key thesis in that article was that the most plausible reason for the NDRC presser failure was not because there were no more policy options, nor was it a deliberate attempt to temper market frenzy, but only a mundane mess-up because of misconceptions and misunderstandings about who the intended audience is. When Director Zheng Shanjie appeared on that stage, it was the upper echelon that he first and foremost made postures for, not the market.
Yet, I also admitted this was a “retarded”, sub-optimal situation. The obvious question for this newsletter, which deals with more “brainy” stuff than my company’s Baiguan, is: Why? Why is this so retarded? Why can’t the NDRC director know better? When can our party and government leaders stop only posturing for their bosses, but posture for the market instead, for once?
An old problem that was suddenly laid bare
Let me state this first: our bureaucrats, like any bureaucrats in the whole world and like all employees working in any company, will first and foremost posture for their managers. Always. This is a basic part of the job. If you don’t want to obey and look good to your bosses, you will lose the job. This will never change.
So when the top boss in China, the Politburo, sounded the clarion call for an economic policy pivot on Sep 26, all the underlings rushed to sound their public commitments. 表态. Here, whether the policy is already worked out is only a secondary concern. Appearing ready for the task is the most crucial thing.
So, in this regard, the NDRC did a perfect job, and even became the first major ministry to speak directly to the people after the Sep 26 Politburo meeting, and immediately after the national holiday was over.
What’s missing though, is whether “effective external communication”, or “expectation management” are part of the job.
Here, I would like to remind my dear readers, that these concerns have never been part of the job for Chinese bureaucrats up until very recently.
Our officials’ main job is to follow orders with discipline, obedience, precision, and importantly, low-key. Their job is to serve the Party, the State, and hopefully, the People. But “managing market expectation” has never been in their job description. It’s not as if our new generation of officials are more incompetent than the generations before in this regard. In fact, they have never been trained with these skills.
So then, why does this become such an issue all of a sudden, yet we didn’t seem to face such a problem a few years ago?
Because times have changed. China used to grow at break-neck speed. The market potential was super, super large. It is still large today, but it’s hard to deny the incremental potential today is much lower than yesterday.
So in the past, growth alone could smooth over communication issues. These officials don’t have to communicate that well if our GDP can grow at 10% per annum. Nobody will say a bad word.
This reminds me of my friend Zak Dychtwald, CEO of the Young China Group, who advises many blue-chip Fortune 500 firms on bridging the communication gaps between their China teams and global HQs, through tools and training programs. As the US seeks to decouple from China, and as China's businesses do not grow as well as before, Zak’s business is actually booming.
The logic works the same way: in the past, there was no necessity to communicate that well. They don’t have to. All it takes is for the China team to stay quiet and work hard, and the HQ will receive a happy billion-dollar dividend check every year. Why bother speaking too much? The performance speaks for itself already.
But now, as our growth story meaningfully moderates, it’s natural for the communication skills of Zak’s clients, as well as of Chinese officials, to be put on center stage.
There is also a second reason for this newfound importance of communication. It concerns a theme I have referred to for over a year now. China is currently pivoting from a land-based finance model to a capital-market-based one.
This is not a choice, but a necessity.
But the capital market has its own rules, and so China’s officials quickly learn that it’s not just securities regulators who need to follow those rules, not just economic planners like NDRC, the state’s bookkeepers like MoF, but everyone, including even education regulators and video game regulators as well.
But I am confident they will get there. In fact there are already signs of improvement.
For instance, although the online game fiasco of last December wiped off billions of value in an instant, what’s even more notable was the speed it took for them to back down, in direct response to the market reaction, which was immensely shorter than the time they took to regret about the crackdown on the education sector.
Even the word “预期管理expectation management” only made its debut in top official documents as late as last December.
And we also should remember an overlooked part of the NDRC presser, where Director Zheng Shanjie said that:
政策出台前要经过一致性评估进行充分论证，政策执行时要与宏观政策取向持续保持一致，政策落实后要对政策的效果及时检测和评估。与宏观政策取向与不一致的，要及时调整或暂停执行。
"Before policies are introduced, they should undergo a thorough consistency assessment and comprehensive argumentation. During policy implementation, they should consistently align with macroeconomic policy orientations. After policies are put into effect, their outcomes should be promptly monitored and evaluated. Any policies that are inconsistent with macroeconomic policy orientations should be adjusted or suspended in a timely manner."
Professor Dong Yu of Tsinghua University, a seemingly well-connected insider who famously wrote an article aiming at managing the public’s expectations in the few days leading up to the MoF presser, also emphasized this point in that same essay (translation by
):The requirement for consistency in macro policy evaluation now extends throughout the entire process of policy formulation and implementation, not just before policy release. This is a significant change, meaning there is now more room for policy correction, and judgment and adjustment of policies will be more closely tied to actual outcomes.
I think what I want to say is that we are still looking at a learning curve. Flops and blunders will keep happening here and there, and the market will keep paying tuition bills (sadly) for Chinese officialdom. But when they happen next time, your wiser reflex should not be panic, but have some patience, believe in progress, and appreciate that they have come a long way.
[This is a free post. The comment section is free to all]
Robert, you are such a good communicator that I hope the Chinese bureaucracy never drafts you to work for them because I want you to speak frankly to me!