My recent stay in China—all 10 weeks of it, across 6 cities—provided far too many layers of information than can be quickly unpacked on social media, but the overwhelming and obvious impression was one of negative economic sentiments, even pessimism, across the board: tentative spending on behalf of consumers, lack of confidence on behalf of entrepreneurs and investors, general miasma in the financial and legal services sectors, all responding to a perceived lack of fiscal and institutional commitments in government policy, despite positive pro-economy rhetoric being issued for over half a year now.

The general impression among academic observers, which I share, is that the central government still has quite a bit of unused policy firepower (stimulus of all kinds, various institutional commitments it could issue to the tech and real estate sectors, etc.), but has thus far been somewhat hesitant to put its money where its mouth is, literally and figuratively speaking, and private economic sentiments are unlikely to improve until it does. Local governments are fiscally exhausted by this point, and cannot do much on their own. Negative sentiments are, of course, self-reinforcing if not quickly reversed through decisive policy action or external shocks, and therein lies the biggest short-to-medium threat to the Chinese economy. There are, of course, powerful sociopolitical reasons (and also long term moral hazard considerations) for why the central government has been somewhat hesitant to fully jump in, but time seems to be running short before social sentiments sour in a more permanent way.

All in all, while the actual economy is undeniably livelier than it was last year (and how could it not be, given the comparison set), subjective sentiments seem much worse. It was still possible, even last July, for some to write off economic headwinds as situational to the pandemic, but now the pandemic is over, and the long term problems that academics have been harping about for years—demographics, local government finances, real estate bubbles, low consumption, etc.—are no longer avoidable regardless of one’s socioeconomic position. The amount of governmental action (and money) needed to arrest this slide into systemic pessimism seems… quite enormous.