Xi Jinping in need of a little magic as coronavirus disease infects growth figures

It is going to take some real artistry for China’s President Xi Jinping to get out of this one.

Xi and his leadership team have an economic dilemma on their hands that makes the Morrison government’s budget surplus anguish look piffling.

Their decision will have profound implications for Prime Minister Scott Morrison, the Australian economy and the rest of the world.

Until this weekend, almost every economist covering the world’s second biggest economy forecast China would grow by at least 5.5 per cent in 2020. Not any more.

“The government is faced with a tough choice,” Raymond Yeung, ANZ’s chief economist for greater China, tells The Australian.

That was made startlingly clear this weekend as China’s National Bureau of Statistics revealed record low sentiment among its manufacturers and services sectors — worse even than during the global financial crisis. The indicators were so bad that some, including Yeung’s ANZ team and former Morgan Stanley Asia chairman Stephen Roach, are predicting China will record its worst annual growth number since the economic shock that followed the 1989 Tiananmen Square massacre.

As Australia’s biggest trading partner, such a slowdown in China would be felt from Martin Place to Collins Street to Langton ­Crescent.

More troubling for those in Xi’s secluded Zhongnanhai leadership compound is that, if realised, these revised numbers would see the Chinese Communist Party fail to achieve its much publicised “centenary” commitment to double China’s GDP in the 10 years to 2020. That pledge to become “moderately prosperous” by the centenary anniversary of the founding of the Chinese Communist Party was made by Xi’s predecessor Hu Jintao.

Xi, who is also the Party’s general secretary, and his propaganda team have made it a key part of the government’s platform.

“2020 will be a year of milestone significance. We will finish building a moderately prosperous society in all respects and realise the first centenary goal,” Xi said in his New Year’s speech on the last day of 2019.

Achieving the 5.6 per cent annual growth in 2020 required to meet the target looked tricky but achievable before the outbreak of the coronavirus.

A well sourced report by Reuters in December quoted policy insiders saying the 2020 growth number — which is announced at the National People’s Congress — would be “around 6 per cent”, comfortably clearing the centenary hurdle.

But that was before COVID-19 infected more than 80,000 people in China, killing almost 3000, and before Xi launched the “People’s War” that has crippled much of the economy.

“China could miss its 6 per cent annual growth target for 2020 by as much as one percentage point,” writes Roach, who lived in Beijing during the 2003 SARS crisis and is now a faculty member at Yale.

The new growth forecast by Yeung’s ANZ team — which has now been revised down twice this year — is even lower at 4.1 per cent.

“They’ve got to face reality,” says Yeung.

Thomas Gatley, a Beijing-based analyst at Gavekal Dragonomics, tells The Australian that with a bit of effort, a bit of luck and perhaps a bit of rejigging, Xi’s government could still meet the 5.6 per cent target.

“I think it’s possible. You’re really asking: how willing are they to massage the numbers?” says ­Gatley.

The answer that Xi’s leadership team agrees on will be revealed at the National People’s Congress, whenever that happens. The event, the biggest set piece event on the Chinese political calendar, was supposed to be held this week in Beijing but has been delayed to an undefined date.

For now, when the NPC will be held, what the announced annual growth number will be and what Xi’s state of mind is during this politically fraught period are all tightly guarded Party secrets.

Despite the woeful indicators, many observers of the Party’s elite still think a heroic campaign — with perhaps a bit of creativity — will ensure the centenary goals are met. “Think like an artist. Don’t let realism get in the way,” advises one.