China Policy Communications Under Scrutiny as Economy Gains Global Prominence

June 8, 2016 5:30 PM

Uncertainty about China’s economic future has underpinned a substantial portion of global market volatility of the past year, a trend complicated by communications missteps from the economic authorities that left investors and overseas policymakers confused.

Following the latest high-level talks between China and the United States, US Treasury Secretary Jack Lew said China needed to improve the way it conveys its shifting policy message publicly.

Lew said the country must become “more adept at communicating its policy path and its analysis of its own economy, because the world and markets are hanging on what China thinks is going to be the next step in its economy.”

Since US policymakers have faced communications challenges of their own, it’s perhaps unsurprising their Chinese counterparts would face a learning curve as their pronouncements start to echo on the world stage.

“China's political structure is not set up for clear communications with the outside world,” said Sean Miner, China Program Manager at the Peterson Institute for International Economics. “The best example is the August change in how China sets the daily yuan fixing rate—very little communication, and then they took a couple days for the press conference, and only after a sharp global equities selloff. It seems the central bank has still not found a promising solution to this.”

Other sources of doubt remain, including how committed the authorities are to reforms like a move toward a flexible exchange rate given the economy’s slowing trajectory and concerns about overcapacity in the industrial sector.

Another key worry: Few Western economists actually trust the official growth statistics, making the extent of the economic slowdown harder to gauge.

China’s progress in loosening its grip on the yuan was part of the reform package that recently earned it entry into the International Monetary Fund’s Special Drawing Rights basket, a move seen as necessary in China’s effort to increase the currency’s use in international trade. But as the leadership is quickly learning, talk is anything but cheap when you’re in charge of the world’s second largest economy.

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Pedro Nicolaci da Costa Former Research Staff