Newsletter 96 - December 11, 2021
Welcome to the 96th edition of Trade War.
A key annual economic meeting signals supporting growth is the new priority. The property slump hits local land revenues. And a think tank says China to aim for over 5 percent GDP expansion next year.
The PBOC gets reined in. A former finance official criticizes the hiding of negative economic news. And Beijing tightens controls over what data is available abroad.
CEWC: Ensuring stability top priority
A key annual economic meeting attended by China’s top leaders in Beijing signals a shift in policy towards supporting growth, reports the Wall Street Journal’s Stella Yifan Xie.
“Ensuring stability is the top priority for the economy next year,” top party members including Xi Jinping said in a statement after the close of the three-day Central Economic Work Conference on Friday. Growth will be held at a “reasonable range” in 2022, the statement said.
“After devoting most of its policies this year to attempting to rein in debt and speculative behavior, Beijing in recent weeks unleashed a string of measures, including a cut in the amount of cash that banks must hold in reserve earlier this week and some easing in property policies, to rekindle growth,” the Journal reports.
Also announced were new tax and fee cuts for business. “The shift came ahead of February’s Winter Olympics in Beijing as well as a party congress in the fall that will see a leadership reshuffle,” Xie writes.
3 pressures: demand & supply shocks, weak expectations
In the face of ‘threefold pressure,’ China’s economic policymakers will now emphasize ‘stability,’ report the South China Morning Post’s Frank Tang and Orange Wang.
“We are facing threefold pressure, including contraction of demand, supply shocks and weaker expectations,” the official Xinhua News Agency reported, citing the economic conference’s official statement. “Our policy support should be front-loaded appropriately.”
“We need to concentrate on stabilizing the macroeconomy, keeping the economic operation within a reasonable range and maintaining social stability,” the statement said. All told, the 4,700 word statement mentioned ‘stability’ 25 times.
The conference also covered the role of private business, now reeling under a year-long crackdown by Beijing. “We must well play the positive role of capital as a production factor, but effectively control its negative role,” the statement said. “It is necessary to support and guide the development of the non-public-ownership economy.” [‘non-public ownership’ refers to the private sector.]
“Beijing intends to set up a “traffic-light” mechanism – referring to areas of encouragement, bans and restrictions – to enhance supervision of capital and prevent excessive growth,” the Hong Kong-based paper reports.
“2021 is all about structural and regulatory reforms, with little attention on the damage to economic growth,” Zhang Zhiwei, chief economist with Pinpoint Asset Management said. “The press release from the working conference today seems to indicate that window has closed.”
“The government may take a step back in 2022 and avoid causing too much collateral damage,” Zhang said.
Property slump hits land sales revenues
The crackdown on property market leverage has hit local governments that rely on local land sales, reports Bloomberg News’ Tom Hancock.
“Because the property curbs are hitting government revenue from selling land, Beijing will need to ease its tough campaign to crack down on “hidden” local government debt if it wants a long-lasting revival in infrastructure spending,” reports the financial news service.
Infrastructure investment in China is expected to reach 23 trillion yuan in 2021, estimates Bloomberg. “Special bonds” of 3.65 trillion yuan ($573 billion) announced earlier this year to counteract “downward pressure” on the economy, will meet only around 16 percent of that. The remainder comes mainly from land sales and local government financing vehicles, both of which are under pressure from the property curbs.
“The platforms have found it harder than in the past to obtain loans from banks and from non-bank “shadow” financing because Beijing has been shrinking the shadow finance sector as part of its financial de-risking effort,” writes Bloomberg.
Meanwhile, “local governments’ land sale revenue could fall 10% year-on-year in 2022,” reports the news service, citing China research consultancy Gavekal Dragonomics. “That means if Beijing really wants infrastructure investment to increase, it will need to loosen the constraints on LGFVs, compromising on its goal to control debt-levels in the economy.”
Above 5% economic growth in 2022
A top Chinese government think tank says the country should aim for economic growth above 5 percent in 2022, reports Reuters.
"A target of above 5 percent leaves a certain room of leeway, which is a relatively prudent call. It would also allow all parties to focus on promoting reforms and innovation and pushing for high-quality development," Chinese Academy of Social Sciences (CASS) researcher Li Xuesong, told reporters in Beijing.
CASS also recommended that the urban unemployment target be around 5.5 percent, with 11 million new urban jobs to be created in 2022. The consumer inflation target should be around 3 percent and the budget deficit also at 3 percent, reports the news service.
‘The PBOC is losing’
Xi Jinping’s ongoing shake-up of the financial sector is also reining in China’s central bank, reports the Wall Street Journal’s Lingling Wei.
Although the People’s Bank of China has never had the independence of a Western central bank, it has had more power than other economic agencies in China.
“The central bank oversees one of the world’s largest financial systems. Though it needs approval from the top bodies of government before it makes big decisions such as those about interest rates, the PBOC has worked for years to establish credibility among investors, at home and abroad, as China’s markets became more sophisticated and their influence extended across the globe,” the Journal reports.
Now that’s changing. The PBOC is one of 25 financial bodies now being investigated by China’s anti-corruption discipline inspectors, part of a campaign to deal with what is now seen as too lax regulation over industries ranging from technology to entertainment and education, the business paper explains.
Communist Party discipline inspectors who in recent weeks have visited PBOC headquarters in Beijing have conveyed “an unusually stern message: Beijing has little tolerance for any talk of central-bank independence; the monetary authority, just like any other part of the government, answers to the party,” writes Wei.
The inspections have focused on whether government financial institutions have “become too chummy with private firms,” or in the case of the PBOC, was “negligent in fending off risks posed by private companies” like Ant Group and China Evergrande Group.
“Operational autonomy is now coming into conflict with a more intrusive role of the government in the economy,” Cornell University economist and former IMF official Eswar Prasad told the business paper. “The PBOC is losing.”
Stop hiding negative news, former official says
A former senior official has criticized China’s statistics for emphasizing positive news while downplaying the negative, report Bloomberg News’ James Mayger and Fran Wang.
While the just-closed central economic work conference highlighted serious pressures weighing on the Chinese economy, none of that shows up in the statistical indicators, which all instead have been “very good,” former finance minister Lou Jiwei said at an online event Saturday.
In China’s statistical indicators “there are insufficient figures reflecting negative changes,” Lou, who has a history of being outspoken, said. “In contrast, the U.S. has both positive and negative numbers.”
“While the government touts the increase in the number of companies and other market entities despite the pandemic, it hasn’t publicized the fact that a large number of these are inactive due to business woes and the difficulty of canceling official registrations, Lou claimed. Similarly, government statistics count new jobs created but don’t follow up on whether those people are then laid off after six months or more, according to Lou,” reports Bloomberg.
“Economists as well as Chinese government officials have repeatedly raised questions about the accuracy of the nation’s economic data over the years,” reports the financial news service. “After a series of scandals about faked data, a special unit was set up to combat the issue, with Ning Jizhe, head of the national statistics bureau, saying in 2018 the problems were all in the past.”
China’s big black box
China is becoming increasingly secretive with information about its economy and society, affecting the ability of outsiders to understand what’s happening inside its borders, report the Wall Street Journal’s Liza Lin and Chun Han Wong.
“China has always been a big black box,” Tokyo-based International Christian University political scientist Stephen Nagy said to the Journal. Now the “black box becomes even blacker.”
Since China’s new data-security law came into effect in September, Chinese companies have become much more cautious about sharing information with multinationals in areas including finance, healthcare, public transportation, and infrastructure.
Suppliers of metals used in electronics like cobalt and lithium are not sharing information with customers outside China any longer. And Zero2ipo Holdings, a database of investment financing, also has stopped selling its information overseas.
“Authorities are ambiguous about what constitutes sensitive information, adding uncertainty for Chinese companies over what they can share with foreign partners,” reports the business paper.
Academia is another area where there has been a dramatic tightening of control over contacts with those from outside China.
Jia Qingguo, the former dean of Peking University’s School of International Studies, raised concerns about the stricter controls facing Chinese researchers, at the annual National People’s Congress meetings in March earlier this year.
“Excessive management has cut us off from studying advanced ideas, research methods and political experiences from abroad,” Jia wrote at the time, noting that some universities had banned Chinese scholars from meeting foreigners without a second Chinese colleague accompanying them.
As worries flare about China’s slowing population growth, men are finding it much harder to get vasectomies in Chinese hospitals, report the Washington Post’s Alicia Chen, Lyric Li, and Lily Kuo.
“For more than three decades, Chinese authorities forced men and women to undergo sterilization to control population growth,” reports the Washington Post. ”Now, as the government tries to reverse a plummeting birthrate that it fears could threaten social stability and the economy, hospitals are turning away men seeking vasectomies.”
China’s barrage of propaganda attacking U.S. democracy, apparently set off by Biden’s just-closed Summit of Democracy, continues with a catchy rap song. Check it out here:
Even as the Biden administration has called the U.S.-China relationship the most consequential foreign policy challenge of our time, Washington’s China policy is still pretty murky, writes The Wire China’s Katrina Northrop.
Land sales, a key source of local government revenues, have fallen dramatically during the real estate crackdown, shows a chart from China research consultancy Gavekal Dragonomics.
Rather than carry out major reforms, Xi Jinping is using small tweaks to try to deal with the multiple crises facing China, writes University of Michigan political scientist Yuen Yuen Ang in Foreign Affairs.
Censorship in China’s primary purpose is to cripple civil society’s ability to organize, writes Rui Zhong in Wired.
Here is an interesting report that looks at some of the drivers of China’s high levels of income inequality, by Zhejiang University’s Junsen Zhang.
Montana late snowfall
After a dry fall, snow has begun to hit western Montana pretty hard tonight.