President Xi’s bridge over troubled waters

President Xi Jinping paid homage to the past when he returned to where China’s economic miracle was born and nurtured. But his eyes were firmly focused on the present and the future.

With immaculate timing, his trip to Guangdong this week conjured memories and images of Deng Xiaoping’s historic 1992 ‘Southern Tour’ after he had stepped down from office.

Back then, the ‘paramount leader’ visited Guangzhou, Shenzhen and Zhuhai to reinforce his “opening up” policies, which had transformed the region.

The symbolism was not lost on Xi.

In fact, it was rather apt that on Tuesday he should open the US$20 billion Hong Kong-Zhuhai-Macau Bridge, which runs for 55 kilometers, or 34 miles, and has taken nine years to construct.

Building bridges are high on the president’s agenda at the moment as his administration faces daunting economic challenges at home and abroad.

“The visit is a strong commitment to China and the world, that [the country] is going to deepen reforms and further open up to [overseas competition],” Liu Chunsheng, an associate professor at the Central University of Finance and Economics in Beijing, said.

‘Economic liberalization’

In the past three months, there have been concerns about China’s lack of progress in “economic liberalization” and the government’s commitment to the private sector.

Squeezed of investment in Xi’s campaign against ballooning debt, small- and medium-sized companies have been hanging on by their fingernails as the economy cools and the trade war with the United States escalates.

Fresh funding measures were rolled out early this week by the State Council, the de facto cabinet, and the People’s Bank of China to ease the pain of SMEs, with Xi reiterating his support for the private sector, which contributes roughly 60% of gross domestic product.

Indeed, the credit crunch has come at a time when the equity markets have resembled a train wreck while GDP growth has dipped to 6.5%, the slowest pace since the Great Recession in 2009.

Nearly $3 trillion has been wiped off the Shanghai Composite Index in the past nine months.

Moreover, after a brief rally, China’s two leading mainland markets in Shanghai and Shenzhen dropped by around 2% on Tuesday, while Hong Kong fell by 3%.

“[Monday’s] 4.1% rally in the Shanghai Composite Index is likely to have been a dead cat bounce,” strategists at DBS Group Research in Singapore reported in a note to clients. “Any stimulus by China should be viewed not as a boost but as a cushion against … external headwinds.”

Debt mountain

After four decades of reform and opening up, the world’s second-largest economy is starting to wobble.

Chipping away at a debt mountain, fueled by local government and corporate borrowing, has become a priority.

Last week, a report released by one of the “Big Three” credit rating agencies, S&P Global, warned of the dangers.

“The extent of off-balance-sheet borrowing among local governments isn’t known, but could be as high as 40 trillion renminbi ($5.78 trillion),” S&P Global Ratings stated. “That’s a debt iceberg with titanic credit risks.”

Still, Associate Professor Liu is convinced China can navigate these treacherous seas if Beijing pushes ahead with crucial reforms.

The benefits, he stressed, would far outweigh the lingering fears of the ruling Communist Party’s ’New Left’ wing.

“China bears responsibilities it should not shy away from,” Liu said. “At a time when the market is still nervous about the ‘private sector,’ Xi’s visit to Guangdong, where private enterprises are densely located, sends a strong message that the government is going to support their development.”

Maybe, but the General Secretary of the CCP is still standing on a bridge over troubled economic waters.