Chinese economists told not to be negative as rebound falters

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Chinese authorities are putting pressure on prominent local economists to avoid discussing negative trends such as deflation, as concerns mount about Beijing’s ability to boost a flagging recovery in the world’s second-biggest economy.

Multiple local brokerage analysts and researchers at leading universities as well as state-run think-tanks said they had been instructed by regulators, their employers and even domestic media outlets to avoid speaking negatively about topics ranging from fears of capital flight to softening prices.

Seven well-regarded economists told the Financial Times that their employers had told them some topics were off-limits for public discussion. The China Securities and Regulatory Commission, the stock regulator, has accused brokerage analysts of playing up risks facing the economy, which is suffering from weak consumer demand, declining exports and an ailing property sector.

Two think-tank scholars and two brokerage economists, all of whom serve as government advisers, said there was pressure to present economic news positively in order to increase public confidence. “The regulator doesn’t want to hear negative comments about the economy in public,” said an adviser to the central bank. “They wanted us to interpret bad news from a positive light.”

Analysts said growing self-censorship among economic research professionals, on whom investors often rely in a market where reliable data is difficult to come by, underscored Beijing’s efforts to control the flow of information.

“You’ve got an economic slowdown that would worry any country, coupled with a China that always likes to put on a brave face to the world and a leadership that is particularly image-conscious,” said Andrew Collier, managing director of Orient Capital Research in Hong Kong. “Put those three factors together and it’s the recipe for a very non-transparent economy.”

The clampdown on economic commentary follows a drumbeat of disappointing data that has undermined investor confidence and hindered Beijing’s efforts to spur a robust post-Covid rebound. Gross domestic product expanded just 0.8 per cent in the second quarter against the previous three months. Last month, the Communist party’s politburo admitted the recovery was making “tortuous progress”.

But as Beijing seeks to restore faith with limited stimulus measures, certain subjects are taboo, such as deflation.

China’s producer price index has declined for eight straight months since October, while annual consumer inflation hit a two-year low of zero growth in June. Citigroup economists said core goods prices, which strip out volatile food and energy costs, had already entered a “deflationary zone” thanks to weak consumer demand.

Yet senior officials from the country’s official statistics bureau and the central bank have ruled out the possibility of deflation. “Deflation does not and will not exist in China,” Fu Linghui, a National Bureau of Statistics spokesperson, said last month.

One Shanghai-based economist at a major financial institution said local television networks had made it clear that only positive comments would be tolerated. “There was no problem talking about deflation or other economic risks last year,” said the economist. “Now such comments won’t appear on TV at all, even if I make them in pre-recorded interviews.”

Some analysts said Beijing was seeking to tighten control over negative commentary in an effort to boost confidence, which is critical to jump-starting a recovery but is in short supply. “Confidence plays a bigger role than government stimulus in rescuing the Chinese economy,” said Dan Wang, chief economist at Hang Seng Bank China.

The Shenzhen Securities Regulatory Bureau in June issued a warning letter to China Merchants Securities, a Shenzhen-based brokerage, and accused it of failing to conduct “rigorous analysis” in a February report that forecast China’s stock market would lose momentum in the coming years, citing cyclical patterns.

The pressure has prompted many economists to refrain from sensitive topics or resort to euphemisms such as “subdued inflation” in research reports and on investor calls.

“As the entire market is aware, there is no such thing as deflation in China,” a prominent economist told a closed-door conference in Beijing in response to a question about deflationary risks. “We could, however, talk about low inflation [risks],” they added, asking the audience to be prudent in choosing which part of his remarks to report.

“It will be bad if you don’t see me tomorrow,” the economist said.

But in private, many economists, even those firmly within the establishment, have continued to question the party line.

Shortly after Beijing released second-quarter economic growth figures, Fan Jianping, former chief economist of the State Information Center, a top government think-tank, said in a closed-door conference that he did not trust the official statistics and warned that China was heading towards deflation, according to two attendees. Fan did not respond to request for comment.

“We were a bit shocked,” one person said. “But he said it out loud.”