By chief business correspondent Ian Verrender
Photo: AFP / Noel Celis
Old habits die hard, particularly in China - and especially when it comes to rebooting the economy.
A fortnight ago, Beijing finally pulled out the bazooka with a plan to cut interest rates, bolster bank liquidity to inject more cash into the economy, and relax rules around property investment.
After four years of a sustained property market crash that has unleashed an economic wrecking ball, the announcement came like a bolt from the blue.
It was greeted with jubilation by economists, lit a fire under global commodity markets, and sent the Shanghai Stock Exchange into orbit, surging more than 30 per cent.
More changes are expected this weekend, with investors eagerly awaiting a new wave of government spending plans that will back up the monetary policy loosening of the past fortnight.
The question, however, is not so much whether the moves are enough to pull our biggest trading partner out of its funk, but whether they are the correct strategy - for there is a much deeper malaise gnawing away at the heart of the country's economic engine.
It's a problem Chinese leaders identified decades ago, but, despite their best efforts, one they have been unable to rectify.
In his final address to the nation as premier more than 11 years ago, then-premier Wen Jiabao warned the country's growth model was "unbalanced, uncoordinated and unsustainable".
While it didn't earn him many accolades at home, his prediction has proved to be uncannily correct, and he put his finger firmly on the problem.
China was too reliant on exporting goods to other countries, he said, leaving it at the beck and call of consumers in the West.
"We should unswervingly take expanding domestic demand as our long-term strategy for economic development," he said.
He'd attempted it in the years leading up to the global financial crisis.
But when global capitalism was teetering on the brink, Wen abandoned the idea and instead loaded up the bazooka and sprayed huge amounts of money on Chinese infrastructure, saving China and the West from an even greater economic disaster.
Saving is creating its very own rainy day
China and Australia are polar opposites of the same problem.
Where Australian households are amongst the world's most indebted - courtesy of hefty mortgages on some of the world's most expensive real estate - Chinese households are stacked to the rafters with savings.
Household savings are running at close to 110 per cent of GDP after growing strongly since the pandemic, and are way above debt levels which have plateaued since 2020, as the graph below illustrates.
Why is that a problem? Because Chinese citizens don't spend. And, as Wen indicated, that increases China's reliance on other countries to consume its output.
At the heart of the problem is China's lack of social security, particularly in old age. Throughout their working lives, Chinese citizens sock away as much as possible to ensure they can survive their retirement years.
It is a situation exacerbated by decades of the One Child Policy and the rapid shift from a largely agrarian economy to a highly urbanised society. Past generations relied upon extensive family networks to support them through old age, particularly those in lower income groups.
Not any longer, as the country's population has peaked and now is starting to decline.
China is in the cusp of a full-blown economic crisis. Youth unemployment has grown to an extent that the statistics are no longer published and the nation has been in the grip of a deflationary spiral for six consecutive quarters.
In a recent report, investment bank Morgan Stanley argued Beijing should move away from big-spending investment programs and focus on a long-term goal of improving household consumption.
Big emergency investment programs are becoming less effective, the bank argues, and adding to the problem.
"Our perspective is that policymakers need to manage aggregate demand with a shift towards consumption, which in turn can be achieved via an increase in social welfare spending for lower-income households," the report said.
"We believe this can be a more effective approach in maximising social welfare and ensuring social stability."
Xi's unhappy flirtation with speculation
The emergency stimulus measures a fortnight ago at least had an immediate effect. Inquiries for property purchases last weekend jumped after almost four years of declines.
Similarly, China's main stock market soared more than 30 per cent in the aftermath, while global commodity prices took off as hopes swelled the country could arrest the property market decline that has sapped investor confidence.
Violent market swings have become something of a hallmark of President Xi Jinping's tenure.
Shortly after assuming the role as paramount leader a little over a decade ago, Xi conceived the idea of the "Chinese Dream": encouraging ordinary citizens to reinvest the huge stimulus proceeds authorities had pumped into the economy during the GFC into the stock market.
The Shanghai and Shenzen markets rose rapidly as tens of millions of unsophisticated new investors plunged their savings into stocks and became ever bolder as stock gains accelerated.
Crashes came in mid-2015 and again in early 2016, igniting a global rout that many feared could rival the GFC.
By the time the Chinese market stabilised in 2017, more than half its value had evaporated, along with huge amounts of savings.
Then came the property boom. Just like the stock market, it turned into a bubble and, by 2019, Xi began warning that "houses are for living in, not speculation".
It's not a bad refrain, but the consequences have been dire at the government, corporate and household levels.
Lending rules were tightened, for developers and buyers, eventually resulting in the collapse of some of the world's biggest property groups, led by China Evergrande.
Many cash-strapped developers couldn't finish their apartment blocks, leaving investors who had paid up-front without property or compensation.
And local governments, which had relied on land sales and property development for revenue, found themselves unable to service their own debt.
Astoundingly, the situation has been allowed to fester until this year, when authorities provided some tepid relief. It wasn't until late last month that authorities became serious about arresting the decline.
Little wonder China's citizens have become wary.
While Beijing has at last opened up the chequebook, it remains to be seen if it has ridden to the rescue a little too late - and it may need to consider broader reforms to restructure the economy.
Xi's predecessor, Wen, may have been right after all.
This story was first published by the ABC.