As China’s property crisis continues to widen and the economy bumbles along in low gear, the country’s top policymakers have made it clear they will not allow any slump to harm the broader economy in 2022.
A statement issued at Friday’s close of the end of year of China Central Economic Work Conference put heavy emphasis on economic “stability” to meet “various challenges for the next year ranging from shrinking demand and supply crunch to downward pressure on economic prospects.”
Western analysts and economists say the statement and its contents represents a significant change of heart by the Xi led government – hands off is no longer policy – the world’s second-largest economy is shifting to a more proactive, while “prudent fiscal policy” that is will be used to prop up a slowing economy amid slowing global growth.
While China’s 2021 economic growth will top the ‘about 6%’ target set a year ago, the 2022 target won’t be announced till next March but already the policymakers and advisers in Beijing have started laying the ground for a slow down with GDP rising around 5%.
President Xi Jinping blessed the final statement from the week-long discussion which mentioned the word “stability” 25 times. Clearly the chance of instability breaking out is a huge concern. We saw the almost panic like response from the government and the Communist Party to the power shortages in September and October that threatened stability and activity in more than 20 provinces.
That was a clear hint at the extent of the concerns at the highest levels of the government about the stuttering economy, deepening property crisis and its impact on Xi’s plans for a third election as President at next year’s 20th People’s Congress.
According to reports in the Xinhua newsagency and in the Global Times, a Communist Party controlled newspaper, the statement revealed that the Xi government pledged to “front-load” policies to shore up the economy next year.
“We are facing threefold pressure, including contraction of demand, supply shocks and weaker expectations,” the official Xinhua News Agency reported, citing the statement from the conference. “Our policy support should be front-loaded appropriately.”
“In line with expectations, the meeting stressed a proactive fiscal policy for next year, noting that the policy must improve efficiency and be more faithful with sustainability, in order to ensure the intensity of fiscal spending.”
An example of that ‘proactive fiscal policy’ was last Monday’s 0.5% cut to the reserve ratios of major banks – which freed up close to $US200 billion to be released this week by the People’s Bank of China.
That came the night before the release of November’s trade data showing the external side of China’s huge economy remains solid. Inflation shows signs of easing or steadying, car sales are weak, but not for New Energy Vehicles sales of which are booming while this week will see the release of the final November data for retail sales, investment and production.
The data is not expected to show a vibrant economy but one needing a bit of help as Covid Delta cases continues to pop up every day, disrupting every day life and business in parts of the country.
Another was the move to get the Guangdong provincial government to intervene and take control of the restructuring of Evergrande, the totting property giant. Thursday’s declaration by the Fitch ratings agency that Evergrande was in default for missing a 30-day grace period to pay interest on foreign debt was a spur to the restructuring that the government will oversee.
Smaller developer, Kaisa, whose shares were suspended last week by the Hong Kong Stock Exchange is still struggling after Fitch also declared Kaisa to be in default.
A third developer, Fantsasia, whose shares have been suspended in Hong Kong since November 29 saw its Moody’s rating withdrawn on Friday by the ratings group which cited a shortage of accurate information.
Fantasia has missed repayment of loans and payment of interest on other loans and claims its stockmarket listing will be restored on Monday.
The property crisis though is not the danger it was three months ago – even though the Hong Kong and Shanghai markets fell on Friday, they were both higher over the week even though the property crisis deepened. the move to take control of the company’s restructuring by the Guangdong government seems to have helped assure investors that the crisis will not be allowed to go much further.
And the crack down on Chinese businesses for most of this year – from ride sharing to crypto mining exchanges, to private education, TV and film actors and, internet companies, online gaming and the humiliation in leading business people, led by Alibaba founder Jack Ma
The Global Times reported “Seemingly a targeted move to clarify misinterpretations on the country’s recent regulatory moves over a range of sectors, the meeting said there will inevitably be various forms of capital in the socialist market economy, and it is necessary to give full play to the positive role of capital, while also effectively controlling its negative role.
The statement said China will set “traffic lights” for capital, strengthen supervision of capital in accordance with the law, and prevent the brutal growth of capital.”
The meeting also stressed again China’s determination to address long-term challenges, such as a shift to clean energy and the crackdown on real estate speculation, but also warned against a one-size-fits-all approach (which is code for the bad policy moves this year in forcing cuts to carbon emissions while not stimulating energy production in the face of booming demand. That resulted in the embarrassing power blackouts and rationing late September and for much of October.
The central government blamed those responsible for implementing large carbon emission cuts across most heavy industries, especially steelmaking, cement making, aluminium and copper processing and similar industries and not taking account of the damage they might do at a time of weakening demand, power problems, falling coal production and rapidly rising prices for coal and gas (especially LNG).
For instance, the meeting said that withdrawing traditional energy (moving from coal and oil and gas to renewables should be based on the safe and reliable replacement by new energy.
The meeting also called for efforts to explore new development models for the industry such as the development of a long-term rental housing market, promoting the construction of affordable housing, supporting the commercial housing market to better meet the reasonable housing needs of buyers, and promoting a virtuous and stable circle for the industry.
That’s almost a mea culpa for the hands-off approach to property for much of the past two decades – but then the Communist party doesn’t believe in forgiveness.
