Xi chaired the meeting of the Political Bureau of the CPC Central Committee to analyze and attempt to remedy China's current serious economic situation. A massive $142 billion (1 trillion yuan) bank capital injection is being considered. Promised “necessary spending” to meet economic growth target. The September meeting is not usually a forum for macroeconomic discussions, suggesting growing anxiety about slowing growth.
The Political Bureau of the Central Committee of the Communist Party of China (CPC)-the highest Party organ-met Sept. 26 to “analyze and study the current economic situation and define the next economic work.” Xi Jinping, General Secretary of the CPC Central Committee, chaired the meeting.
GettyImages
At the meeting, Chinese leaders pledged to deploy “necessary fiscal spending” to achieve the economic growth target of about 5 percent for the year, acknowledging new problems and raising market expectations for new stimulus on top of measures announced this week.
The September meeting is not usually a forum for macroeconomic discussions, suggesting growing anxiety about slowing growth.
The meeting stressed the need to increase countercyclical adjustments in fiscal and monetary policies, ensure necessary fiscal expenditures, and effectively implement the work of the “three guarantees” at the basic level.
It is necessary to consider the current economic situation comprehensively, objectively and calmly, deal with difficulties directly, strengthen confidence and effectively enhance the sense of responsibility and urgency of doing a good job in economic work. We must grasp the key points and take the lead in effectively implementing existing policies, step up efforts to initiate incremental policies, further improve the relevance and effectiveness of policy measures, and strive to complete the annual goals and tasks of economic and social development. It is necessary to issue and make good use of ultra-long-term special treasury bonds and local government special bonds to better play the role of public investment in stimulating investment. It is necessary to lower the deposit reserve ratio and implement a sharp cut in interest rates. To ensure that the real estate market stops falling and stabilizes, we must strictly control the increase in commercial housing construction, optimize the stock, improve the quality, increase the supply of loans for “white list” projects, and support the revitalization of existing unused land. . It is necessary to respond to the concerns of the masses, adjust the policy of restricting housing purchases, reduce the interest rate of existing mortgage loans, accelerate the improvement of land, tax and fiscal, banking and other policies, and promote the construction of a new model of real estate development. Efforts should be made to boost the capital market, vigorously guide medium and long-term funds to enter the market, and open the checkpoints for social security, insurance, financial management and other funds to enter the market. It is necessary to support mergers, acquisitions and reorganizations of listed companies, continuously promote the reform of public funds, and study and introduce policies and measures to protect small and medium-sized investors. It is It is necessary to issue and make good use of ultra-long-term special treasury bonds and local government special bonds to better play the role of public investment in stimulating investment. It is necessary to lower the deposit reserve ratio and implement a sharp cut in interest rates. In order to stop the decline of the real estate market and stabilize, we must strictly control the increase in commercial housing construction, optimize the stock, improve the quality, increase the supply of loans for "white list" projects, and support the revitalization of existing unused land. . It is necessary to respond to the concerns of the masses, adjust the policy of restricting housing purchases, reduce the interest rate of existing mortgage loans, accelerate the improvement of land, tax and fiscal, banking and other policies, and promote the construction of a new model of real estate development. Efforts should be made to boost the capital market, vigorously guide medium and long-term funds to enter the market, and open the checkpoints for social security, insurance, financial management and other funds to enter the market. It is necessary to support mergers, acquisitions and reorganizations of listed companies, constantly promote the reform of public funds, and study and introduce policies and measures to protect small and medium-sized investors. It is necessary to introduce a law on promoting the private economy to create a favorable environment for the development of the non-public economy. It is necessary to combine the promotion of consumption with the benefit of people's livelihood, promote the income growth of low- and middle-income groups, and improve the consumption structure. It is necessary to cultivate new consumption formats. It is necessary to support and regulate social forces in the development of the elderly and child care sectors, and improve the fertility support policy system as soon as possible. It is necessary to increase efforts to attract and stabilize investment, promote and timely implement reform measures such as access to foreign investment in manufacturing, and further optimize the first-class, market-oriented, legal and international business environment. It is necessary to preserve people's profits, focus on the employment of key groups such as recent graduates, migrant workers, people out of poverty, zero-job families, etc., and strengthen assistance to groups with employment difficulties such as the elderly, disabled people and the long-term unemployed. It is necessary to strengthen the assistance and care of low-income people. We must ensure the stable supply and prices of important materials such as food, water, electricity and heating. We must focus effectively on food and agricultural production, care about increasing farmers' income, and focus on autumn and winter production to ensure national food security. |
The world's second-largest economy faces strong deflationary pressures from a sharp downturn in the housing market and fragile consumer confidence, which has exposed its over-reliance on exports in an increasingly tense global trade environment.
A wide range of economic data in recent months missed forecasts, raising concerns among economists that the growth target was at risk and that a long-term structural slowdown might be at play.
“New situations and problems” demand a sense of ‘responsibility and urgency,’ state media reported, citing the Politburo meeting.
Chinese real estate stocks rose more than 8 percent and their Hong Kong peers rose 9 percent after the Politburo announcement, driving wider gains in the stock market. The yuan and Chinese bond yields also rose.
The Politburo said the government should “promote the stabilization of the housing market,” expand a white list of housing projects that can receive additional financing and revitalize idle land, according to the reading.
Officials will “respond to people's concerns, adjust policies to restrict home purchase, lower existing mortgage rates, and improve terrial, fiscal, tax and financial policies as soon as possible to carry out the new real estate development model,” it said.
China considers massive $142B (1 trillion yuan) bank capital infusion
China is on the verge of injecting nearly $142.4B (1 trillion yuan) to increase its biggest state bank’s capacity to support its nose-diving economy and slow markets. Sources confirmed that Beijing planned to issue new sovereign bonds to fund the largest Chinese government bailout since the 2008 global financial crisis.
The decision aligned with Beijing’s broad stimulus measures to boost its poorly performing economy after four of its five top lenders reported Q2 losses, as reported by Bloomberg. The banks had lowered interest rates in response to government requests to stimulate falling loan demands. Analysts recommended more fiscal stimulus as China’s growth target was at risk due to deflationary pressures.
China was weighing the possibility of funding the country’s biggest banks with a major $142 billion capital injection into its dwindling economy. The decision is, however, not final; it is still in the early stages. The Chinese Central Bank revealed its planned economic stimulus package on September 24 in a bid to pull the economy from deflationary pressures and restore confidence in the second-largest economy in the world.
The People’s Bank of China (PBOC) received criticism from analysts questioning the productivity of its liquidity injection since consumers and businesses had extremely low demand for credit. The analysts also noted that there were no policies to support real economic activities to rekindle and sustain China’s prolonged structural slowdown. They also pointed out that more fiscal stimulus would be required to get the year’s growth trajectory to its 5% target.
The PBOC also reported that it would cut interest rates, including its new benchmark seven-day reverse repo rate, which it plans to reduce by 0.2 percentage points to 1.5%. It further mentioned that interest rates on the medium-term lending facility will drop by 30 basis points and prime rates by 20-25bps. Gary Ng, senior economist at Natixis, mentioned that while such policy changes were probably coming a bit too late, they were better than nothing.
Four of the five largest Chinese banks reported lower Q2 revenues following a ‘nudge’ from the Chinese government to boost credit demands by lowering lending rates. The Industrial and Commercial Bank of China Ltd (ICBC) and the CCB (China Construction Bank) reported second-quarter net profit declines of 0.8% and 1.4%, respectively.
The ICBC’s NIM (net interest margin) narrowed to 1.43% by the end of June, down from 1.48% just three months earlier.
The Bank of Communications (BoCom) and the Bank of China also reported lower profits in Q2, although AgBank beat the trend with a 14.2% profit increase.
On Tuesday, the PBoC unveiled a policy interest rate cut of 0.2 percentage points, combined with a lowering of banks' reserve requirements and a cut in existing mortgage interest rates, both by 0.5 percentage points.
The PBoC also announced its 'intention to inject more liquidity into the stock market by refinancing bank loans to help companies buy back their own shares . It will also help institutional investors such as securities companies raise funds by allowing them to borrow liquid assets using their equity holdings as collateral.
The purpose of all these unprecedented maneuvers is to jumpstart a moribund economy that’s currently on course to miss an official annual GDP growth target of “around 5%.” While China’s exports for August were up a robust 8.7% year-on-year, imports rose by just 0.5%, spotlighting weak domestic spending. Meanwhile, a raft of nations rolling out new export controls, including a 100% tariff on Chinese EVs by the U.S. and Canada, means exports also face significant headwinds.
Yet while the PBoC measures may provide some relief for firms facing falling factory gate prices, or local governments struggling with servicing record debt, experts are pessimistic they alone will get the Chinese economy humming again.
Xi has made the government dangerously dependent on his person. In late 2020, the CCP secretary warned “that the economic, social and technological challenges facing the nation are long-term and will become more serious.”
For this reason, since mid-2021, a crackdown on private sector capital raising has been implemented and work has been done to make China's capital markets serve as a vehicle for financing the Party's technological and policy development goals.
The current crisis is the result of Xi's wrong choices and today the imperative is to save the CCP's face at any cost.
Comments