Chinese President Xi Jinping has taken a big gamble in shaking up key industries ahead of a political rally that could decide whether he rules the country indefinitely. Now he is starting to brake.
In recent weeks, Chinese authorities have moved to ease sweeping policies designed to make the economy less dependent on debt, monopolies and fossil fuels. While Beijing’s edicts have chastised Chinese business elites, they have also started to show signs of hitting ordinary citizens with higher electricity bills, lost savings and – if the economy continues to shrink.Wrestle– potentially fewer jobs.
Premier Li Keqiang expressed caution a week ago, saying China shouldrethinkthe pace of the country’s energy transition as an electricity crisis threatened to keep factories in the dark and homes without heat during the winter.
By Friday, the central bankfinally spokeon the debt crisis of the China Evergrande group, saying that the risks were controllable and that lenders should keep credit to the real estate sector stable and orderly. It came shortly after Bloombergreportedthat financial regulators have asked some major banks to speed up mortgage approval in the last quarter.
China is now facing a confluence of increasing structural headwinds, said George Magnus, an associate researcher at the China Center at the University of Oxford. Stability and order will be sought above all, but within the framework of a well-defined political agenda. The Party cannot afford to derail something like Evergrande or inflation.
Hindsight shows the difficult balance Xi faces in reshaping the world’s second-largest economy in a way that doesn’t cause too much pain to nations 1.4 billion people, about 40% of whomto winonly 1,000 yuan ($ 155) per month on average. Xi’s push for common prosperity has underpinned a series of policies aimed at tackling widening inequalities, which pose a long-term threat to the legitimacy of the Communist Party – and, ultimately, its own future. Politics.
While it is important for Xi to assert his authority beforeplenum next monthand next year’s Party Congress – a twice-decade-long leadership reshuffle in which he is expected to secure an unprecedented third term – any economic downturn that leads to social unrest risks weakening his grip on power . Slowing the pace of change in key areas would allow Xi to ease the immediate pressure without altering his broader plans to overhaul China’s economy.
Read also : China believes its time has come. But here’s what he hasn’t accepted yet
Xi has a low tolerance for the outcome that directly hurts many ordinary Chinese, as it would create serious risks to political stability and the party’s legitimacy, said Neil Thomas, Eurasia Group analyst for China and North Asia. -East. The main stakeholder that Xi is determined to protect above all else is the Communist Party itself.
The severity of the energy crisis and the downturn in real estate in China surprised economists, prompting many to revise their forecasts for economic growth for the full year downwards. Third-quarter figures released on Monday showed the challenge: Gross domestic product rose 4.9% year-over-year, up from 7.9% previously reported in the previous quarter. Chinese stock benchmark CSI 300, one of Asia’s worst performers this year, fell around 1.2%.
While Chinese policymakers have expressed confidence in their ability to meet modest growth targets and have not announced stimulus packages, authorities have recently struggled to calibrate their approach. Last month, Bank of America economists Miao Ouyang and Helen Qiao warned that the credit crunch was unnecessarily aggressive and would defeat the political goal of a healthy and stable real estate market.
At a virtual roundtable last week on the electricity crisis, representatives of European companies in China said their factory managers had received late-night texts from government officials asking them to shut down production the next day. Local authorities, they said, could not differentiate companies based on their energy use, instead taking a rigid and one-size-fits-all approach, largely out of fear of angering Beijing.
At the same time, key leaders moved quickly to ease price controls on the sector that had been in place for years in an attempt to alleviate the crisis, which was fueled by a combination of rising global prices of raw materials and overzealous local officials seeking to hit emissions reduction targets. The State Council this month announced that China will increase maximum electricity tariffs and gradually allow all coal-fired electricity to be traded on the open market.
Impossible to achieve overnight
In some ways, the start-stop nature of Xis’ reform push is a built-in feature. Communist Party Newspaper Qiushi Released Fridaya more completeversion of one of the speeches of the Xis in August, which emphasized the need for gradual and orderly progress to achieve common prosperity.
It’s impossible to achieve overnight, Xi said.
The goal, he added, was ultimately to ensure social harmony by expanding the middle class and reducing the proportion of rich and poor to form an olive-shaped distribution structure. He called for a stronger public sector and an improved social safety net while also emphasizing the need for upward mobility and mobilizing the enthusiasm of entrepreneurs.
At one point, he admitted that China still did not understand how it would work exactly: we have a complete solution to the problem of poverty, but we still have to explore and accumulate experience on how to get rich. .
A key aspect of Xis’ plan involves strengthening patriotism, seen most clearly by China’s movements to assert its claims to Taiwan, an autonomous democracy. Chinese fighter jets carried out a record number of sorties near the main island earlier this month, leading the United States to denounce Beijing for its provocative military activities.
At the same time, China is easing tensions with the United States and its allies. Beijing has reacted relatively quietly to reports that a small number of U.S. military advisers have been deployed to Taiwan, and Xi agreed to a virtual summit later this year with U.S. President Joe Biden. The Chinese leader also hosted a summit with the European Union last week later this year.
Goldman Sachs Group Inc. recentlygot approvalto take 100% of its joint venture securities firm in China, and Commerce Minister Wang Wentao told state broadcaster CCTV on Monday that the government would continue to expand market access for foreign capital.
While China’s use of nationalism shows it needs a non-economic way to try and promote the regime’s legitimacy, Xi is currently focusing on stabilizing the economy, according to Matthew Gertken, a geopolitical strategist at BCA Research, based in Montreal, which provides global macroeconomic research. .
On the current trajectory, there is a clear and current danger of worsening illiquidity, collapsing house prices, crunching credit, financial and economic crisis and socio-political problems, he said. declared. These results may ultimately be inevitable, but first the regime will moderate policy in an attempt to avoid them. – Bloomberg
Read also : China’s real estate and energy crises hit GDP growth hard
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