But there may be another reason for China’s reluctance to stimulate demand. Xu Gao, the chief economist at Bank of China, says much of the policy elite in Beijing has fallen under the spell of Friedrich Hayek and the Austrian business cycle.
Hayek is neglected in the West – few still read Prices and Production or The Fatal Conceit: The Errors of Socialism – but his market fundamentalism is perversely fashionable in Communist China.
Any attempt to alleviate China’s post-bubble pain is decried as “drinking poison to quench one’s thirst”. Excess credit must be purged by liquidation, with no interference in the self-correction process. Hardliners say that curing a debt crisis by pushing the augmented fiscal deficit to 14pc or 15pc of GDP is pure hemlock.
This economic ideology is fully aligned with Xi Jinping’s views on social discipline and moral fibre. “Welfarism” is a dirty word in Xi Thought. It fosters “lazy people who get something for nothing,” as he puts it.
Yet China’s leader may conclude that the punishment beatings have gone too far and that the survival of the Communist Party is better served by letting the Chinese people consume more of their own hard labour, and by retreating from trade wars with Europe, America and India.
Xi abandoned the Maoist lunacy of “dynamic zero Covid” suddenly and without explanation. It is not impossible that he will listen seriously to those now calling for a drastic change of course and Roosevelt policies. Should he do so, it will change the global economic landscape overnight and set asset markets on fire.
Investors need to watch China very closely over the next six months.