China Stimulus – Planning or Mobilizing?

China came out strong and early with its big stimulus package, and it was very well received both at home and around the world. Now, in the cold light of day, Beijing is being criticized for cobbling together an unwieldy hodge-podge of existing programs and stale long-term projects.

Is the stimulus package just smoke and mirrors?
Yes, no and maybe. It doesn’t matter.

Planning vs. Mobilizing.
Chinese leaders have three management modes. They withdraw (benign neglect), they plan (fine-tune the status quo) and they mobilize (damage control).

Withdraw
The first 20 years of China’s reform was about Withdrawal. That was really the whole point of market-socialism. The Center would remove itself and the people would make decisions about production, consumption and pricing. After playing around with SOE reform and Pillar Industries for a while, Beijing really hit its stride with SEZs — a combination of tax relief, infrastructure and relaxed regulations. That was actually nothing more than withdrawing from day to day decision making and allowing private actors freedom to move.

Plan
Chinese bureaucrats have always loved their big, bold 5 year plans, and we’ve been sign plenty of that. Big picture, large scale projects created and controlled in Beijing have always been part of the China playbook. It centralized control, focused the leadership and established a highly structured hierarchy in accordance with good old fashioned Confucian ideals. China still comes out with a 5 Year Plan at every Party conference, but they don’t attract the same attention that did when Mao was around. The recent plans have been adjustments and tweaks to keep China on the same course. The thing about China’s planning is that they tend to be conservative and incremental. They work best when the status quo is sound and clear.

Mobilize
Mass mobilizations of resources, manpower and material have been the real hallmark of Chinese power — and nobody does it better. Think of the Great Wall, the Forbidden City, the Great Canals, the 3 Gorges Dam and the Olympics. China has traditionally used mass mobilizations for 2 reasons. First — sometimes there is nothing more effective than sheer scale and brawn for tackling really big problems. China believes it can control nature and physical laws. It places the Chinese People right up there with gravity, atmosphere and the movement of planets as far as raw power goes. Second — when the going gets tough in China, China makes sure the tough are busy and occupied. Big works make big news and tend to crowd everything else off the front page. Propaganda only works when you have a message, a goal and an enemy. Propaganda and mass mobilization are two sides of the same coin — and Beijing is about to go ‘old school’ with both.

Was the Stimulus Package a Plan – or a Mobilization?
China will plan as well as it can, but this recession has taken the policy makers by surprise with its depth, severity and persistence. They’ll continue to massage the numbers and hold to an 8% GDP growth target for a while longer — but when the facade of serene prosperity finally cracks and falls it will be time to mobilize the masses. China still has the wherewithal to throw huge amounts of money and resources around and there will be impressive infrastructure projects and good works. New industries may arise out of nowhere or receive ambitious new objectives. Green, auto, steel, software, and telecom are all good bets.

The first Stimulus Package was a trial balloon — and it worked. Western leaders and Jiang Q. Public both ate it up. Look for Beijing to keep the big pledges and massive projects rolling. But make no mistake — these are flat out mobilizations and not organized, well-considered plans. We may see more than a few ‘bridges to nowhere’ and giant stadiums in the countryside — which is just fine as long as Beijing can continue footing the bill. But we also may see a rush of new edicts and regulations that contradict earlier reforms.

Once China switches to full-on mobilization mode all previous bets are off. We’re already seeing full-employment trumping every other business policy consideration. If the Chinese economy continues to falter, expect deeper changes to the status quo. Don’t be surprised if some of those changes affect the laws, regulations and policies that western business has come to rely on.

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