Why China's Economic Strategy Differs From Western Expectations

When a patient repeatedly refuses the same medicine, there are usually three possibilities: he does not understand the diagnosis, cannot afford the treatment, or does not trust the doctor. The same logic applies to economic prescriptions.

In the case of China, the first possibility is unlikely because Beijing understands what ails its economy. The reason it is not acting as expected is probably a combination of the other two scenarios, compounded by a more fundamental difference: China believes it is treating a different disease.

Western economists see weak consumption, a prolonged property downturn, deflationary pressure, a massive trade surplus and indebted local governments. Their standard prescription is to transfer more income to households, strengthen the social safety net and reduce reliance on investment, exports and manufacturing.

Beijing has moved in some of these directions, but not at the scale or decisiveness outsiders expect. This is wrongly interpreted as policy paralysis. A more useful explanation is that China is no longer optimising simply for short-term gross domestic product growth.

Beijing is preparing for prolonged strategic rivalry with the United States, as economist Tan Kong Yam and others have pointed out. Seen through this lens, China’s choices become less puzzling. Beijing is trying to reduce technological dependence, preserve industrial capacity and withstand a longer period of Western pressure. GDP still matters, but it is no longer the be-all and end-all of Beijing’s calculations.