China Threatens Its Economists And Analysts To Only Write Bullish Reports, Or Else

When it comes to dealing with the mass media and its impact on public confidence, China has a long and illustrious history of not beating around the bush.  Last summer around the time its stock market bubble started to crack, Beijing banned the use of such terms as "equity disaster" and "rescue the market." Then earlier this year, China's president Xi Jingping visited the country’s three big state news organizations, Xinhua, the People’s Daily and China Central Television, to lecture them on the need to toe the party line, "tell China’s stories well" and enhance the nation’s influence in the world.

After all, hinting that not all is as it appears in official propaganda soundbites would merely instill further lack of confidence in the economy and accelerate the stealthy capital outflows from the country (while making the Vancouver real estate market even more entertaining).

Now, according to the WSJ, Chinese authorities have set their sights on a new set of targets: "economists, analysts and business reporters with gloomy views on China’s economy."

While in the US and the rest of the free world, anyone who holds a less than bullish view of things is simply marginalized as a conspiracy theorist, ridiculed by establishment economists and pundits, is the recipient of mainstream media hit pieces, or denigrated by the president as "peddling fiction", China has decided to take a more blunt approach: "securities regulators, media censors and other government officials have issued verbal warnings to commentators whose public remarks on the economy are out of step with the government’s upbeat statements."

Take the example of Lin Caiyi, chief economist at Guotai Junan Securities who has been outspoken about rising corporate debt and a glut of housing and the weakening Chinese currency. According to the WSJ, she received a warning in recent weeks, her second, from her state-owned firm’s compliance department, which instructed her to avoid making “overly bearish” remarks about the economy, particularly the currency.

For now it is just verbal warnings although if past is prologue we expect China will soon incarcerate at least a few of its "rogue" bearish economists to send a very clear signal that any lack of upbeat commentary will not be tolerated.

Meanwhile, China's economy is doing so well, that as a result of "pressure" by financial regulators bent on stabilizing the market, stock analysts at brokerage firms are becoming wary of issuing critical reports on listed companies. At least one Chinese think tank  was told by propaganda officials not to cast doubt on a planned government program to help state companies reduce debt.

What China really wants is to make sure that every financial and economic expert is on the same page and reinforcing the same message as that uttered by the country's political leaders.

The WSJ caveats that while evidence of the clampdown is anecdotal, it appears widespread. Government departments didn’t respond to requests for comment or declined to. Commentary about the economy and reporting on business, unlike on politics or many social policies, have been relatively unfettered in China in a tacit acknowledgment by officials that a freer flow of information serves economic vitality.

As noted above, Beijing openly moved to reassert control of the country’s economic story line after stumbles over the stock markets and exchange-rate policies last year fed doubts among investors about the government’s competence in navigating a hard-to-arrest slowdown in growth. During the past two months, the Communist Party leadership has taken to talking up the economy to try to reassure global markets, seemingly not realizing that such "full tilt" propaganda merely confirms everyone's worries about the just how bad the underlying economy truly is.

"Vigorous debate among economists and public confidence in this conversation is critical if China is to successfully navigate the choppy economic waters,” said Scott Kennedy, a deputy director at the Center for Strategic and International Studies, a Washington think tank. “If the party and government only want to hear good news, then they’d be better off hearing nothing because the value of the words would be less than zero."

None of this, however, trickles down to the politburo, which just cares about one thing: stopping the naysayers. 

Some lower-level government officials describe a siege mentality taking hold among Chinese leaders and senior officials as international financiers like George Soros expressed gloom about the economic outlook early this year. At high-level meetings the past few months in the walled Zhongnanhai compound where the leaders work, some senior officials called for quashing any criticism that might encourage foreigners to “short China”—or bet against the prospects for growth—officials with knowledge of the discussions say.


“You can see they’re not happy when you tried to tell them foreign speculators are not your biggest problem,” said one of the officials who attended the meetings.

You can also see it during overnight CNH trading sessions when in its eagerness to destroy Yuan shorts, the PBOC unleashes the artillery to push the currency higher, even if it ultimately means more pain for China's economy.

Meanwhile, "journalism" in China is now back to levels seen during the peak of the communist regime: non-existent.

"As a Chinese reporter, you can do anything but journalism these days,” said a senior editor at a state-owned media outlet. One colleague, the editor said, was forced by the outlet to take a leave of absence over what senior editors considered the reporter’s aggressive investigation into the causes of last summer’s stock market crash.

It was unclear if a major party mouthpiece had unleashed a hitpiece against the reporter first.

Still, the one aspect of the economy China is most worried about is its currency. In February, as reported here before, the central bank abruptly stopped releasing data on foreign-exchange purchases by commercial banks—long viewed by market analysts as a key snapshot of China’s capital flows—amid growing worries over more money leaving its shores. In a statement days later, the central bank said it took the step because the data were "no longer a true reflection of China’s capital flows."

Ms. Lin, the economist at Guotai Junan, said she started getting guidance last fall to tone down her public remarks about the Chinese currency, the yuan or renminbi—something she acknowledged at an economic forum held at Shanghai’s Fudan University in October.

"I was told by regulators not to recommend shorting the renminbi,” Ms. Lin told the gathering, “so I’m just going to recommend buying the dollar." Neither Ms. Lin nor her firm responded to inquiries for comment, nor did the regulator.

Or take the example of another ludicrous plan recently proposed by China: the intention to convert trillions of bad loans into equity, something we dubbed an "unprecedented nationalization of insolvent companies." Here too Beijing wants to make it clear that no domestic opposition to this "plan" will be accepted:

In the financial hub of Shanghai, the city’s propaganda department recently instructed a local think tank to stop researching a planned debt-for-equity swap program aimed at helping big state companies reduce debt, according to economists familiar with the matter. The reason, these economists said, is that officials don’t want the research to turn up unfavorable evidence after Premier Li Keqiang and others have endorsed the swaps.  The information office of the Shanghai government didn’t respond to requests for comment.

Many analysts have said the plan, which would allow banks to exchange bad loans for equity in companies they lend to, could risk keeping companies afloat when they should sink while leaving banks more strapped for capital. Given the climate, some are changing their tone.

Then, in mid-April, a well-known Chinese economist gave investors in Hong Kong a grim assessment of the economy. It was not meant to last.

Despite recent signs of a rebound, Gao Shanwen, chief economist at brokerage Essence Securities Co., told investors that “a lot of the official data aren’t reliable” and the economy still faces “big problems,” according to people who attended the closed-door event.


Words of those remarks crackled across social media. Two days later, Mr. Gao issued a clarification on his public account in the popular Chinese messaging app, WeChat, saying those remarks were “made up.” He then released a report on the economy shorn of critical commentary. Mr. Gao and representatives at his firm didn’t return requests for comment.

And just like that not only is all Chinese "economic data" rubbish and a completely goalseeked fabrication, but henceforth any domestic commentary on said "data" will be just as credible.

Meanwhile, while in the US while the government is not directly threatening anyone who dares to criticize the economy - yet - there are more tacit ways of pressuring critics and contrarians, the most simple of which of course is to simply pay much more to those who do comply with the tacit propaganda line. This, sooner or later, is sufficient to get even the most bearish naysayers to change their tune. After all they have to eat too.

Incidentally, when that fails and when bullish US propaganda has to be as leakproof as that of China, we are confident that any naysayers will get comparable treatment.