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Chinese President Xi Jinping made a big bet in a key industry before a political rally that could decide whether he will rule the country indefinitely. Now he started to apply the brakes.
In recent weeks, the Chinese authorities have begun to relax comprehensive policies aimed at reducing the economy’s dependence on debt, monopolies and fossil fuels. Although Beijing’s laws have punished China’s corporate elites, they have also begun to show signs that ordinary citizens will suffer higher electricity bills, savings losses, and-if the economy continues to be troubled-job opportunities may be reduced.
A week ago, Premier Li Keqiang expressed caution, saying that China needs to reconsider the pace of energy transition, because the power crisis may plunge factories into darkness in winter and homes without heating.
By Friday, the central bank finally delivered a speech on the debt crisis of China Evergrande Group, saying that the risk was “controllable” and that lenders should maintain a “stable and orderly” credit to the real estate industry. After Bloomberg reported that financial regulators required some major banks to speed up mortgage approvals last quarter.
George Magnus, a research assistant at the China Center at Oxford University, said: “China is now facing a confluence of rising structural economic headwinds.” “Stability and order will be the most important, but in the context of a very clear political agenda. Down. The party cannot afford things like Evergrande or derailed by inflation.”
The callback shows that Xi Jinping’s difficult balancing act in reforming the world’s second largest economy will not cause much suffering to China’s 1.4 billion people, of which about 40% earn only RMB 1,000 per month (155 U.S. dollars) average. Xi Jinping’s promotion of “common prosperity” underpins a series of policies aimed at addressing growing inequality, which poses a long-term threat to the legitimacy of the Communist Party and ultimately threatens his own political future.
Although it is important for Xi Jinping to maintain his authority before next month’s plenary session and next year’s party congress-two leadership reorganizations in ten years, he is expected to receive a third term that breaks the precedent-but anything that causes social unrest Economic recession risks weakening his control of power. Slowing down the pace of change in key areas will allow Xi Jinping to ease the immediate pressure without changing his broader plan to reshape the Chinese economy.
‘Serious risk’
“Xi Jinping has a very low tolerance for results that directly lead to the suffering of many ordinary Chinese people, because it will bring serious risks to political stability and party legitimacy,” said Neal Thomas, an analyst at Eurasia Group China and Northeast Asia. “The main stakeholder that Xi Jinping is determined to protect is the Communist Party itself.”
The severity of China’s energy crisis and real estate slowdown surprised economists, prompting many to lower their annual economic growth forecasts. The third-quarter data released on Monday showed the challenge: GDP grew by 4.9% year-on-year, down from the previously reported 7.9% in the previous quarter. The Chinese stock market benchmark CSI 300 Index is one of the worst performing stocks in Asia this year, down about 1.2%.
Although Chinese policymakers have expressed confidence in achieving moderate growth targets and have not hinted at a stimulus plan, the authorities have been trying to adjust their methods recently. Last month, Bank of America economists Ouyang Miu and Qiao Hailun warned that the credit crunch was “too radical” and would run counter to the “policy goal of a healthy and stable real estate market”.
At a virtual roundtable on the power crisis last week, representatives of European companies in China stated that their factory managers received text messages from government officials late at night, asking them to stop production the next day. They said that local authorities could not distinguish companies based on energy usage, but adopted a strict one-size-fits-all approach, mainly for fear of angering Beijing.
At the same time, the supreme leaders did act quickly to ease the price controls imposed on the industry for many years to alleviate the crisis caused by rising global commodity prices and overzealous local officials trying to crack down on emission reduction targets. The State Council announced this month that China will increase the maximum electricity price and gradually allow all coal-fired power to be traded on the open market.
‘Impossible to achieve overnight’
In some respects, the beginning and ending nature of Xi Jinping’s reforms is an inherent feature. The CCP’s “Qi Shi Bao” published a more complete version of Xi Jinping’s August speech on Friday, emphasizing the need for “gradual progress” in achieving “common prosperity.”
“It can’t be done overnight,” Xi Jinping said.
He added that the ultimate goal is to “form an olive-shaped distribution structure” to ensure social harmony by expanding the middle class and reducing the ratio of rich to poor. He called for the establishment of a stronger public sector and improved social safety nets, while also emphasizing the need for upward mobility and mobilizing “entrepreneurs’ enthusiasm.”
He once admitted that China has not yet figured out how to operate: “We have a complete solution to the poverty problem, but we still need to explore and accumulate experience on how to get rich.”
A key aspect of Xi Jinping’s plan involves strengthening patriotism, the most obvious of which is China’s claim to Taiwan, an autonomous democratic country. Earlier this month, Chinese warplanes carried out a record number of strikes near the main island, leading the United States to condemn Beijing’s “provocative military activities.”
At the same time, China is easing tensions with the United States and its allies. Beijing’s reaction to reports of a small number of US military advisers being sent to Taiwan was relatively mild, and Xi Jinping agreed to hold a virtual summit with US President Joe Biden later this year. Chinese leaders also held a summit with the European Union later this year.
Goldman Sachs was recently approved to acquire 100% of its equity joint ventures in China. Commerce Minister Wang Wentao told China Central Television on Monday that the government will continue to expand foreign market access.
Matthew Gertken, a geopolitical strategist at Montreal-based BCA Research, said that although China’s use of nationalism indicates that it needs to “try to promote regime legitimacy through non-economic means,” Xi Jinping’s current focus is Stabilize the economy. Macro research.
“On the current track, there are clear and real dangers of insufficient liquidity, plummeting real estate prices, credit crunch, financial and economic crises, and socio-political issues,” he said. “These results may ultimately be inevitable, but first the regime will moderate its policies to try to avoid them.”
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