Contextualizing the NDRC presser: is it communication error or an intentional act?
And can we "buy everything" China now?
During the national day holiday, the mainland market closed while the Hong Kong market surged to new heights. Legends flew around that many retail investors in the mainland were still opening new accounts and their money was their way for a post-holiday buying spree. Hopes ran high that following the pivotal Sep 24 press conference announcing unconventional monetary policies and the unconventional Politburo meeting of Sep 26, fiscal measures supporting the economy would be announced soon.
It was within such an environment, that in the middle of the holiday, it was announced that the National Development and Reform Commission (NDRC), our top economic planning agency, would hold a press conference on the morning of Oct 8, immediately after the holiday. Everyone automatically assumed this was about fiscal measures. Hopes ran even higher.
We all knew the rest of the story by now. The presser turned out to be a nothing-burger. Markets sank furiously in response. What’s more, both the A-share and the Hong Kong market broke historic trading volume records on Oct. 8, showing this episode has been extremely significant for many stakeholders.
In our last article about this rally, we listed 5 areas of concern that we should all pay attention to. We didn’t realize some of those buttons could be hit so quickly.
In this article, I will walk through how this mass psychological event evolved, and I will propose three likely theories about why the NDRC presser even had to exist. These theories are:
There are no more meaningful stimulus policies,
This is a deliberate sabotage of market sentiment so the market doesn’t turn into a “crazy bull” scenario and,
This is a miscommunication error reflective of the way the Chinese government is currently organized).
Rest assured, unlike some research outlets that only propose theories without making a choice, we will pick the most plausible one by the end of it.
And in Baiguan’s spirit of providing only actionable insights, we will give our assessment of this rally’s future viability.
Hopes were too high
Let me first start by stating the obvious: The market’s hopes for this specific pressor were too high.
When I first saw this cryptically coded notice, I didn’t think it was about fiscal measures. For starters, it never even said in its text that this was about fiscal measures. But it quickly became obvious that in the hot heat of anticipation, everyone who frantically shared this in almost all discussion groups already assumed it was. When one subscriber asked me whether I thought this was about fiscal policy in our Discord community (exclusive for paying subscribers), this is my answer:
It could be. But I am curious why minister of finance doesn’t also appear together.
More than that, as
pointed out in his newsletter:This sharp rally is happening before we have details of any additional fiscal stimulus. From last week’s Politburo readout it sounds like something more is coming on the fiscal side, but we may need to wait several more weeks, as Caixin noted in its latest cover story
But in the echo chambers of the market participants, somehow it was ingrained in our mind that, no, despite all those facts to the contrary, this presser was really about fiscal policies. Even Robin Xing of Morgan Stanley, who was recently vindicated after years of sounding positive for the Chinese economy, got carried away by the sentiment of the herd.
Three theories
There are 3 possible theories for why this NDRC fiasco happened.
The first one that we can rule out is that the authorities have exhausted policy options, and this is just as much as we should expect from them. In fact, the Politburo meeting signaling the pivot at the highest level only happened as late as Sep 26, so more time should be given to iron out the details of fiscal measures. It was unrealistic to assume that a meaningful policy package could have been rolled out within such a short window.
The second theory, that many people bought in quickly, was that policymakers were re-calibrating their position to avoid an out-of-control “crazy bull” scenario.
This one was plausible, and it’s indeed a key area of concern we listed in our previous article:
Another concern is retail euphoria. In the 2014-2016 period, our current leadership team had a painful history of seeing market entering the euphoria stage before crashing down dramatically and they will pay extra attention before our current rally develops into a stampede.
However, we do not think this is the likely reason. For one thing, there was only fear of a crazy bull, but by Oct 8, the crazy bull was only a “crazy calf”. Killing it at this stage would be killing it too soon. In fact, for the past few days, we saw many official mouthpieces trumpeting for this calf to grow older, with only very few voices advising caution. Clearly, a bull market is politically correct now, not the other way around (yet).
Our old friend
also pointed out the institutional impracticality in his latest article also discussing this incident (translation by Claude 3.5 and Baiguan):"[This scenario] requires too high a level of cross-departmental coordination and too deep a level of strategic planning. Secondly, retail investors shouldn't imagine themselves to be too important. The process of planning to release something, observing an overheated market reaction, then halting it, and turning it into a restatement of principles - this requires too much skill in between, and there are some organizational obstacles: The department that focuses on the stock market may not have the power to influence the NDRC; the department focusing on the stock market can't decide on its own that this is overheating, after all, only overseas markets were surging during the holiday, it's not directly their KPI; even if they want to influence the NDRC, it needs to be elevated to a coordination level, with large and small debates and communications back and forth, and if there isn't a senior official who both understands and values the stock market who can take responsibility, it can't be settled even in a month. Moreover, the real economy has a higher priority than the stock market. If there's a policy but it's not released, then when should it be modified for release, and who decides the timing? Does the NDRC still need to meet its own KPIs?"
With this theory conveniently ruled out, let’s dive into the most plausible theory that we can think of, that this is no more than a mundane communication error. Although it doesn’t make sense to outside observers, it has its own internal logic.
Let me translate Bob’s work again here:
So I'm more inclined to believe that they weren't fully prepared, and it was more about coming out again [Baiguan: after the Sep 24 pressor] to give a high-profile explanation, emphasizing the key point of coordination.
The leaders might have thought that the format of the NDRC head and four deputies was already a major stimulus to make the market respectful.
…
So why the urgency? Now that the decision-making level has clearly shifted direction, the execution level must follow suit with their statements. So they took the lead on the first working day after the National Day holiday to do it.
This follows the same logic as when during the Covid years, local governments went further than they needed to comply with centrla government directives. Making a posture is very important.
Yes, “making a posture” is what I think this is all about. It sounds a bit farcical, but it’s the most plausible scenario. It was more like a mundane mess-up due to misconceptions and misunderstandings about who the intended audience was for whom. Let me also quote from someone, presumably working in the government sector in China who made a comment on Bob’s article:
You have a keen understanding of how our system operates. Indeed, whether there is substance is not that important. What is most important is to provide timely response [after bosses have signaled their intent]. As for implementable policies, inter-departmental coordination is necessary, and just a week is far from enough for that.
But frankly speaking, I think this is a retarded situation. My pet theory was that our party and government systems are still experiencing the growing pains of learning how to communicate effectively with the market. I might explore why this issue suddenly became an issue in an upcoming post in my personal newsletter China Translated. (Paying subscribers of Baiguan also enjoy free access to this)
So what now?
So what will happen to the rally? What will happen to the much anticipated fiscal measures?
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