New Delhi: Chinese President Xi Jinping He took a big gamble to shake up major industries before a political gathering that could decide whether he ruled the country indefinitely. Now he’s starting to brake.
Chinese officials in recent weeks have moved to soften sweeping policies designed to make the economy less dependent on debt, monopolies and fossil fuels.
While Beijing’s orders followed China’s corporate elites, they began to show signs of hitting ordinary citizens with high electricity bills, lost savings and – if the economy continues to struggle – potentially fewer jobs. Gave.
Prime Minister Li Keqiang warned a week ago that China needed to reconsider the pace of the country’s energy transition because of the power crisis causing factories to be dark and homes without heat during the winter. There is danger.
By Friday the central bank finally spoke up on the credit crisis at China Evergrande Group, saying risks were “controllable” and lenders should keep the real estate sector “stable and orderly”.
Financial regulators asked some major banks to expedite mortgage approvals in the last quarter, shortly after Bloomberg reported.
“China now faces a confluence of growing structural economic constraints,” said George Magnus, a research associate at Oxford University’s China Center. “Stability and order will be above all else, but in the context of a very defined political agenda. The party cannot tolerate anything like Evergrande or inflation derailment.
The pullback illustrates the difficult balancing act Xi has to face in overhauling the world’s second-largest economy in a way that doesn’t cause too much pain for the country’s 1.4 billion people, of whom only about 40% per month. earn 1,000 yuan ($155). Average.
Xi’s push for “common prosperity” has underpinned many policies aimed at tackling widening inequality, which poses a long-term threat to the legitimacy of the Communist Party – and ultimately to its own political future.
While it is important for Xi to assert his authority before next month’s plenum and next year’s party congress – a leadership reshuffle twice in a decade, in which he is expected to secure a precedent-breaking third term – Any economic downturn that leads to social unrest threatens to weaken his grip on power.
Slowing down the pace of change in key sectors would allow Xi to ease pressure immediately without altering his broader plans to rebuild China’s economy.
‘serious risk’
“Xi has a low tolerance for consequences that directly harms a lot of ordinary Chinese, as it poses serious risks to political stability and the legitimacy of the party,” said Neil Thomas, analyst at the Eurasia Group for China and Northeast Asia. will do.” “The main stakeholder that Xi is determined to protect above all else is the Communist Party itself.”
The severity of China’s energy crisis and asset slump has stunned economists, prompting many to downgrade their full-year economic growth forecasts.
Third-quarter data released on Monday showed the challenge: GDP expanded 4.9% from a year earlier, down from the 7.9% reported earlier in the previous quarter. China’s stock benchmark CSI 300, one of Asia’s worst performers this year, fell nearly 1.2%.
While Chinese policymakers have expressed confidence they can achieve modest growth targets and have not indicated plans for stimulus, officials have recently struggled to calibrate their approach.
Last month, Bank of America economists Miao Ouyang and Helen Qiao warned that the credit crisis was “unnecessarily aggressive” and would work against “the policy goal of a healthy and stable asset market”.
In a virtual roundtable on the power crisis last week, representatives of European businesses in China said their factory managers received late night text messages from government officials demanding they stop production the next day.
Local officials, he said, cannot differentiate between companies based on their energy use, instead taking a rigid one-size-fits-all approach largely for fear of angering Beijing.
At the same time, top leaders acted swiftly to ease price controls on the sector that had existed for years to ease the crisis, which stemmed from a combination of rising global commodity prices and overzealous local officials seeking to hit. was influenced. emissions reduction targets.
The State Council announced this month that China would raise maximum electricity rates and gradually allow all coal-fired electricity to be traded on the open market.
‘Impossible to achieve overnight’
In some ways, the nature of the beginnings of Xi’s reform is an inherent feature. The Communist Party’s Qiushi Journal on Friday published a more complete version of one of Xi’s speeches in August, emphasizing the need for “gradual and systematic progress” in achieving “general prosperity”.
“It is impossible to achieve overnight,” Xi said.
The goal, he added, was ultimately to ensure social harmony by developing the middle class and reducing the ratio of rich and poor “to create an olive-shaped distribution structure”. He called for a stronger public sector and better social-safety nets, while also emphasizing the need for upward mobility and “entrepreneurial enthusiasm”.
At one point he admitted that China still hasn’t figured out how this will actually work: “We have a complete solution to the problem of poverty, but we still have to seek and accumulate experience in the issue of getting rich. ”
A key aspect of Xi’s plan includes strengthening patriotism, which is most clearly seen by China’s moves to press its claims on Taiwan, a self-governing democracy. Chinese warplanes flew a record number of flights near the main island earlier this month, prompting the US to condemn Beijing for “provocative military activity”.
At the same time, China is reducing tensions with America and its allies. Beijing had a relatively silent response to reports that a small number of US military advisers had been stationed in Taiwan, and Xi agreed to a virtual summit with US President Joe Biden later this year. The Chinese leader last week also set up a summit with the European Union later this year.
Goldman Sachs Group Inc. recently received approval to take 100% ownership of its securities joint venture in China, and Commerce Minister Wang Wentao told state broadcaster CCTV on Monday that the government was looking to expand market access for foreign capital. Will stay
While China’s use of nationalism suggests that it “needs non-economic means to try to promote the legitimacy of the regime,” according to Matthew Gertken, a geopolitical strategist at Montreal-based BCA Research, right now the Xi economy We are focused on stabilizing what the global offers. Macro Research.
“On the current path, there is a clear and present threat of expansion of illegality, falling property prices, debt crisis, financial and economic crisis and socio-political problems,” he said. “These consequences may eventually be inevitable, but at first the regime will moderate policy to try to avoid them.”
Chinese officials in recent weeks have moved to soften sweeping policies designed to make the economy less dependent on debt, monopolies and fossil fuels.
While Beijing’s orders followed China’s corporate elites, they began to show signs of hitting ordinary citizens with high electricity bills, lost savings and – if the economy continues to struggle – potentially fewer jobs. Gave.
Prime Minister Li Keqiang warned a week ago that China needed to reconsider the pace of the country’s energy transition because of the power crisis causing factories to be dark and homes without heat during the winter. There is danger.
By Friday the central bank finally spoke up on the credit crisis at China Evergrande Group, saying risks were “controllable” and lenders should keep the real estate sector “stable and orderly”.
Financial regulators asked some major banks to expedite mortgage approvals in the last quarter, shortly after Bloomberg reported.
“China now faces a confluence of growing structural economic constraints,” said George Magnus, a research associate at Oxford University’s China Center. “Stability and order will be above all else, but in the context of a very defined political agenda. The party cannot tolerate anything like Evergrande or inflation derailment.
The pullback illustrates the difficult balancing act Xi has to face in overhauling the world’s second-largest economy in a way that doesn’t cause too much pain for the country’s 1.4 billion people, of whom only about 40% per month. earn 1,000 yuan ($155). Average.
Xi’s push for “common prosperity” has underpinned many policies aimed at tackling widening inequality, which poses a long-term threat to the legitimacy of the Communist Party – and ultimately to its own political future.
While it is important for Xi to assert his authority before next month’s plenum and next year’s party congress – a leadership reshuffle twice in a decade, in which he is expected to secure a precedent-breaking third term – Any economic downturn that leads to social unrest threatens to weaken his grip on power.
Slowing down the pace of change in key sectors would allow Xi to ease pressure immediately without altering his broader plans to rebuild China’s economy.
‘serious risk’
“Xi has a low tolerance for consequences that directly harms a lot of ordinary Chinese, as it poses serious risks to political stability and the legitimacy of the party,” said Neil Thomas, analyst at the Eurasia Group for China and Northeast Asia. will do.” “The main stakeholder that Xi is determined to protect above all else is the Communist Party itself.”
The severity of China’s energy crisis and asset slump has stunned economists, prompting many to downgrade their full-year economic growth forecasts.
Third-quarter data released on Monday showed the challenge: GDP expanded 4.9% from a year earlier, down from the 7.9% reported earlier in the previous quarter. China’s stock benchmark CSI 300, one of Asia’s worst performers this year, fell nearly 1.2%.
While Chinese policymakers have expressed confidence they can achieve modest growth targets and have not indicated plans for stimulus, officials have recently struggled to calibrate their approach.
Last month, Bank of America economists Miao Ouyang and Helen Qiao warned that the credit crisis was “unnecessarily aggressive” and would work against “the policy goal of a healthy and stable asset market”.
In a virtual roundtable on the power crisis last week, representatives of European businesses in China said their factory managers received late night text messages from government officials demanding they stop production the next day.
Local officials, he said, cannot differentiate between companies based on their energy use, instead taking a rigid one-size-fits-all approach largely for fear of angering Beijing.
At the same time, top leaders acted swiftly to ease price controls on the sector that had existed for years to ease the crisis, which stemmed from a combination of rising global commodity prices and overzealous local officials seeking to hit. was influenced. emissions reduction targets.
The State Council announced this month that China would raise maximum electricity rates and gradually allow all coal-fired electricity to be traded on the open market.
‘Impossible to achieve overnight’
In some ways, the nature of the beginnings of Xi’s reform is an inherent feature. The Communist Party’s Qiushi Journal on Friday published a more complete version of one of Xi’s speeches in August, emphasizing the need for “gradual and systematic progress” in achieving “general prosperity”.
“It is impossible to achieve overnight,” Xi said.
The goal, he added, was ultimately to ensure social harmony by developing the middle class and reducing the ratio of rich and poor “to create an olive-shaped distribution structure”. He called for a stronger public sector and better social-safety nets, while also emphasizing the need for upward mobility and “entrepreneurial enthusiasm”.
At one point he admitted that China still hasn’t figured out how this will actually work: “We have a complete solution to the problem of poverty, but we still have to seek and accumulate experience in the issue of getting rich. ”
A key aspect of Xi’s plan includes strengthening patriotism, which is most clearly seen by China’s moves to press its claims on Taiwan, a self-governing democracy. Chinese warplanes flew a record number of flights near the main island earlier this month, prompting the US to condemn Beijing for “provocative military activity”.
At the same time, China is reducing tensions with America and its allies. Beijing had a relatively silent response to reports that a small number of US military advisers had been stationed in Taiwan, and Xi agreed to a virtual summit with US President Joe Biden later this year. The Chinese leader last week also set up a summit with the European Union later this year.
Goldman Sachs Group Inc. recently received approval to take 100% ownership of its securities joint venture in China, and Commerce Minister Wang Wentao told state broadcaster CCTV on Monday that the government was looking to expand market access for foreign capital. Will stay
While China’s use of nationalism suggests that it “needs non-economic means to try to promote the legitimacy of the regime,” according to Matthew Gertken, a geopolitical strategist at Montreal-based BCA Research, right now the Xi economy We are focused on stabilizing what the global offers. Macro Research.
“On the current path, there is a clear and present threat of expansion of illegality, falling property prices, debt crisis, financial and economic crisis and socio-political problems,” he said. “These consequences may eventually be inevitable, but at first the regime will moderate policy to try to avoid them.”
.