Many expected that Chinese President Xi Jinping would take advantage of a national address marking the 40th anniversary of the beginning of Deng Xiaoping's historic economic reforms to announce significant initiatives to reassure the public, investors and business people about the state of the faltering economy.
He came nowhere close. Beyond platitudes about continuing on the "path" of reform, Xi offered nothing new. Chinese stocks, which had risen last Tuesday morning before Xi began speaking, slid.
Fresh initiatives are needed beyond the short-term stimulus measures agreed afterward at the annual Central Economic Work Conference. While real economic activity in China is weakening, it shows no hint of collapse.
Underlying data on retail sales and steel production imply the economy is expanding at a measured pace. China still looks likely to grow faster next year than any other major economy except India, according to International Monetary Fund forecasts which put the expected gross domestic product rise at 6.2%.
Sentiment in China, however, is souring rapidly against the backdrop of the lowest growth rates in more than a decade. Confidence among both consumers and entrepreneurs has been on the decline for months, according to surveys by the National Bureau of Statistics.
The agency's measure of economists' own confidence has fallen especially dramatically. With a reading of 100 marking the difference between a positive and negative outlook, the economists' sentiment index fell to 66 in September from 102.2 in March.
More tellingly, the China Securities Investor Protection Fund stopped reporting its monthly reading of investor confidence in April, when it was just above the midpoint. Investors are showing little interest in returning to the market after taking nearly 3.75 trillion yuan ($544.18 billion) out of domestic stocks so far this year as the benchmark CSI 300 index slid more than 24%. As the sell-off continues, there is evidence the lack of confidence is spreading to the yuan, which has sunk close to a 10-year low.
Expectations matter hugely in economics because they can drive behavior in a self-fulfilling loop. If on observing the sagging stock market and yuan, people believe the economy is contracting, they will act based on an expectation of harder times ahead by postponing discretionary purchases, for example. If people no longer believe in ever-rising home values, this could trigger a collapse in asset prices.
Many Chinese worry that a crackdown on shadow banking, aimed at containing the risks of runaway debt accumulation, has tightened credit to the degree that private companies and aspiring homeowners may not get the funds they need. This in turn has weighed on asset prices. Meanwhile, although Xi and U.S. President Donald Trump have declared a temporary truce in the trade war, anxiety about a looming drop in exports remains.
The combination of pressures has highlighted Beijing's difficulties with stage-managing the economy and given people license to vent economic frustrations. The reality is that keeping up the confidence of the Chinese public is now as much of a challenge for Beijing than dealing with actual economic pressures.
Government mouthpieces have been spewing a never-ending barrage of announcements about confidence-boosting measures. The authorities have declared war on short-sellers of the yuan (also known as the renminbi), announced measures to stabilize the stock market and offered bailouts for liquidity-strapped companies.
"For those who are trying to short the renminbi, we are very familiar with each other as we fought hand to hand a few years ago," said People's Bank of China Vice Governor Pan Gongsheng recently. "I think it's still fresh in our memory."
The Chinese public remains wary despite, or even because of, the messaging from the top that the economy is still growing reasonably. By suppressing economic data, censoring debate and repeating a mantra of stability ad nauseam, Beijing is inadvertently reinforcing long-standing concerns about the reliability of official figures.
The key failure of Beijing is managing expectations. Officials seem divided over how to boost the economy, what monetary and fiscal tools to apply and how much to aid private business as well as over potential risks, especially the danger of further inflating the country's credit balloon.
Unclear policy is resulting in inconsistent signaling. During his speech last week, Xi emphasized both the importance of state-owned enterprises and the need for private businesses to prosper. His administration has sometimes hailed the role of the free market in providing stability while other times crediting the government. Similarly, officials have at different times emphasized the necessity of market discipline and the benefits of not facing competitive pressures.
On key economic issues, official messaging can now feel like a conflicting mess of technocratic doublespeak filled with cliches that could support virtually any conceivable position. Policy execution has arguably been even worse. For years Beijing insisted it would not bail out companies and investors but has proceeded to do so repeatedly.
While some of these contradictions are inherent in China's "market socialist" system, it is little wonder few believe official declarations when Beijing undermines its credibility so often. The end result of these missteps is falling confidence in the authorities' technocratic omnipotence.
Managing an economy is as much about guiding expectations as it is about the technical specifics of policy administration. Although the U.S. Federal Reserve spends enormous resources on understanding the American and global economies, a top priority is communicating with markets on the future direction of policy to avoid springing surprises. By keeping the market informed and then following its policy guidance with actions, the central bank establishes credibility.
While authoritarian party rule distinguishes China from the U.S., signaling can be just as important as consumers and private business owners freely choose whether and when to make purchases and investments. People cannot freely choose their political representatives but can select their cars. Even if the empirical reality indicates that Chinese growth is just moderating rather than collapsing, Beijing's inability to formulate and execute a credible communication plan leaves many asking uncomfortable questions about the economy.
Rather than trying to dwell on China's economic and technological accomplishments, Beijing should guide expectations about continued slowing growth. It also needs to reset assumptions about asset price growth by backing up its words with actions to deflate price bubbles.
China has not had a recession or even an officially recognized growth slowdown of any consequence in more than a generation. It is considered near birthright that home prices will always grow 10% annually. Such growth is -- perhaps wrongly -- taken for granted.
As long as Beijing tries to sell "the everything is awesome" line without laying out the case for fundamental reforms that expose companies and households to pressure, people will doubt the propaganda. As long as the authorities backtrack on commitments to change and dodge the pain of restructuring and lower asset prices, they will be forced to prop up everything.
If Beijing wants to bolster confidence in its ability to guide the country's economic transition, it needs to lay out a clear policy vision of how to manage its problems and then follow through. Muddled communication that no one believes, coupled with incoherent policy that fails to match its rhetoric, is a recipe for problems.
Christopher Balding is an associate professor at Fulbright University Vietnam in Ho Chi Minh City.