{"id":10587,"date":"2022-07-08T07:30:21","date_gmt":"2022-07-08T07:30:21","guid":{"rendered":"https:\/\/focus.cbbc.org\/?p=10587"},"modified":"2022-07-04T10:06:52","modified_gmt":"2022-07-04T10:06:52","slug":"the-future-of-li-keqiangs-likonomics-in-china","status":"publish","type":"post","link":"https:\/\/focus.cbbc.org\/the-future-of-li-keqiangs-likonomics-in-china\/","title":{"rendered":"The future of Li Keqiang’s “Likonomics” in China"},"content":{"rendered":"

Li Keqiang\u2019s economic policy \u2013 called Likonomics \u2013 has received new attention as China seeks to recover from the latest Covid outbreak, but weak domestic demand and a struggling property sector might force Chinese leaders to abandon Likonomics at the next Party Congress in autumn, writes Torsten Weller\u00a0<\/span><\/strong><\/span><\/h2>\n

The dramatic weakening of China\u2019s economic performance \u2013 caused by the lockdowns in Shanghai and other big cities \u2013 has prompted Premier Li Keqiang, who is in overall charge of China\u2019s economic policy, to assume a far more prominent public position. While this shift in media attention has led to speculation about a potential split within the top ranks of the Communist Party (CCP), the main question lies elsewhere: will Li\u2019s policies to revive the struggling Chinese economy actually work?\u00a0<\/span><\/span><\/p>\n

Li Keqiang\u2019s distinctive policy approach \u2013 often dubbed Likonomics \u2013 prefers supply-side measures and strict budgetary discipline to large-scale monetary stimuli<\/a> and big-ticket infrastructure investment. Although China\u2019s debt binge in the wake of the 2008 financial crisis and the soaring public debt levels make Li\u2019s policy choice look reasonable, questions are being raised over whether they are the right tools to deal with the economy\u2019s most pressing problem: weak domestic demand<\/a>.\u00a0<\/span><\/span><\/p>\n

What\u2019s more, Li\u2019s emphasis on tax cuts and lower social security contributions to support businesses puts further pressure on local government budgets, which have already been battered by years of debt accumulation and rising demand for social services. If one adds the increasing cost of extended lockdowns and preventive measures to the mix \u2013 which are also financed out of local coffers \u2013 then it becomes more and more apparent that Li\u2019s policy approach might not be fit for purpose.\u00a0<\/span><\/span><\/p>\n

Both a continuation and an abandonment of Likonomics could have important consequences for foreign businesses in China.\u00a0<\/span><\/span><\/p>\n

\"launchpad<\/a><\/p>\n

Likonomics isn\u2019t a new term. In fact, it was first coined in the early days of Li\u2019s premiership. In June 2013, only months after his official appointment as the head of the State Council, Huang Yiping, a professor at Peking University, together with two analysts at Barclays Capital, Jian Chang and Joey Chew, published a report entitled \u201cWhat to expect from Likonomics?\u201d.\u00a0<\/span><\/span><\/p>\n

Initially conceived as the opposite to \u2018Abenomics\u2019 \u2013 a reference to Japanese Prime Minister Shinzo Abe\u2019s lacklustre attempt to revive Japan\u2019s sluggish economy \u2013 Likonomics was not about stimulating growth, of which there was more than enough in China, but rather it focused on transforming it from the debt-driven model of the Wen Jiabao era into a more sustainable, long-term model able to lift China into the ranks of high-income developed economies. As Huang Yiping wrote back then: \u201cLikonomics is about deceleration, deleveraging and improving the quality of growth.\u201d<\/span><\/p>\n

Yet marketing jargon aside, Likonomics isn\u2019t a specifically Chinese affair. As the Economist noted, Li\u2019s three \u2018arrows\u2019 \u2013 no stimulus, deleveraging, and structural reform \u2013 were surprisingly similar to the austerity measures adopted by other countries \u2013 including the UK \u2013 following the financial crisis of 2008.\u00a0<\/span><\/span><\/p>\n