China needs to open up about its economy

Rogoff: China has recessions 'like everybody else'
Rogoff: China has recessions 'like everybody else'

Many of the worries over China's economy and markets can be boiled down to a single word: Uncertainty.

Will Beijing rescue the stock market? Will the central bank move to stimulate the economy? Just how weak is growth?

China cut interest rates for a fifth time since November on Tuesday, and made it easier for big banks to lend -- an unusual combination that some analysts interpreted as a strong message of official support triggered by the stock market crash.

But big questions remain, largely because Beijing lacks an effective communication strategy. Government agencies produce unreliable economic data, and policymakers deliberate in secret, issuing decisions in a seemingly random order and without explanation.

Analysts are often left with little material to work with. And as China's economy and markets become ever more important to global investors, its communication strategy is coming under fire.

"We need to understand better what's going on [with China]," Colombian Finance Minister Mauricio Cardenas told CNN on Monday. "China's recent moves don't seem to be part of a program, they seem to be more immediate responses to problems."

"Having a plan and communicating that plan would be good for the world economy and emerging economies in particular," Cardenas said.

Related: China's stock market crash ... in 2 minutes

Consider the events of recent weeks: China's stock market started to tumble on June 12, and it wasn't long before regulators stepped in to stem the slide. But confusion reigned -- officials blamed illegal short sellers for the crash, and then rumor mongers.

It was -- and is -- not clear why Beijing chose to intervene. There were no press conferences, and little in the way of official explanation. Fast forward a few weeks, and policymakers appeared to reverse course, deciding that markets should be allowed to fall. Again, without explanation.

Shanghai stocks plunged more than 11% last week, 8.5% on Monday and another 7.6% Tuesday. The market is now 42% below its peak.

Related: Why China scares investors

The central bank's shock decision to allow the yuan to depreciate, announced on August 11, also sowed confusion. China claimed the move was aimed at giving market forces more influence over the currency, but many economists were convinced the central bank was trying to boost exports.

Central bank officials held an exceedingly rare press conference, but in a sign of how little credence the bank's public statements are given, many analysts dismissed the explanation. Vietnam quickly moved to devalue its currency, raising the specter of a regional currency war.

Related: China still has firepower to boost its economy

When it comes to economic data, official statistics leave much to be desired. GDP numbers are taken with a big pinch of salt, and some economists rely on alternative indicators such as electricity consumption to gauge activity. Unemployment data is of little use.

For much of the past three decades, China's lack of transparency was not much of a problem. Every quarter, without fail, Beijing would report growth in excess of 10%. Doubters could be silenced with physical evidence: Hundreds of cranes worked around the clock in the country's cities, building homes and offices for tens of millions of residents, many of them recently arrived from the countryside.

But now, China's economy is the world's second largest and growth is slowing. What happens in China affects not only its regional trading partners, but large swathes of Africa, Europe and the Americas. As Uncle Ben said in Spider-Man: "With great power comes great responsibility."

For China, that means being more open about what's going on in its markets and economy.

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