China's Economy Slows As Focus Shifts From Manufacturing To Consumer Spending

Transcript

STEVE INSKEEP, HOST:

Now let's get a view of China's economy from a man who has a global view of it. Our regular guest, David Wessel, has covered the U.S. economy, the markets and the Federal Reserve for many years. In recent days, he traveled to China, the country whose apparent economic troubles have shaken U.S. markets. So what struck his eye? We're going to ask. He's on the line.

David, good morning.

DAVID WESSEL: Good morning, Steve.

INSKEEP: The open question here is, is China in a little trouble that it can handle over time or something worst? What do you think?

WESSEL: Exactly. Well, look, it's abundantly clear that China's manufacturing sector is a mess, and we have lots of data to prove that - electricity output and stuff like that. They're very good at counting physical things. The weakness for manufacturing shows up in a reduced appetite for commodities that's hurting exporters from Canada to South Africa. But China's trying to shift its economy from manufacturing and big infrastructure to services and consumer spending.

And what we don't know is how much of the slack those growing sectors are picking up. But what was striking to me in Beijing was that the top economic leadership in China doesn't know either. They just don't have very good numbers. There's nothing like the U.S. monthly jobs report in China.

So the central bank sounds very optimistic - things aren't so bad, it'll get better soon. Other parts of the government sound much more worried. One official said to us, China's economy is in its wintertime - it may be long, it may be short. And I really had to restrain myself from asking him if he was a "Game Of Thrones" fan.

INSKEEP: (Laughter) It sounds like you were not really all that impressed by what the Chinese officials had to say.

WESSEL: Well, you know, it's hard to exaggerate how little outsiders know about how the Chinese government makes decisions. What surprised me was the sense that there's so many tensions inside the government about how to manage the economy, how quickly to open up to market forces.

And we saw those tensions erupt when the stock market there crashed and some parts of the government wanted to intervene, so some days they did. Some days they didn't intervene. It made for a lot of confusion. So they have this State Council in China - 12 officials. They make almost every major decision - interest rates, exchange rates, how quickly should we allow competition in the service sector and so forth.

And unlike the Federal Reserve here or the U.S. Congress, they don't really explain the rationale for their decisions. That didn't used to be a big deal, but China's now such a huge economy that when it makes a move, the implications ricochet around the world. So their inexperience in explaining themselves is really proving to be a big problem, and they were surprised to learn that.

INSKEEP: Is that just a problem of explaining of communications, or is it that they don't really have an explanation?

WESSEL: I think they're struggling to come up with a strategy to cope with an economy that's changing, growing perhaps more slowly than they anticipated. They're worried about the flow of money out of China, which is a new development. They're surprised at how much global financial markets in countries like Kazakhstan and Malaysia responded when they devalued their currency.

So I think that for a long time, people in financial markets - and even in the U.S. government - would say, oh, China's got big problems, but look at their track record. These guys are competent. They can handle this. They have control. And now I hear a lot more people outside and inside China saying maybe these guys don't know what they're doing. And frankly, I kind of felt that way when I came home.

INSKEEP: Did you feel that you were in an anxious place, that people were a little tense where you were?

WESSEL: I found that the officials were tense and a bit concerned about the impression they were making on the rest of the world. I didn't talk to a lot of ordinary Chinese, but I talked to a couple of young women who were on the sidelines of a conference we were at. And I was struck by how little trust they have in anything the government said. They were incredulous that I believed any of the Chinese economic numbers. And they told me both their mothers had been in the stock market and hadn't gotten out because they were sure the government would take care of it.

INSKEEP: David, thanks very much.

WESSEL: You're welcome.

INSKEEP: David Wessel, director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal. Transcript provided by NPR, Copyright NPR.