The State Council of the Communist Party of China announced on August 23 that it will send 19 inspection teams to conduct major inspections of 19 provincial-level administrative regions including Guangdong, Shanghai, and Xinjiang, focusing on the “six stability” of employment, finance, foreign trade, foreign investment, investment, and expectations. “aspect.
According to Xinhua News Agency, the official media of the Communist Party of China, the inspection aims to ensure that all localities implement the decisions and deployments of the Central Committee of the Communist Party of China, promote the implementation of the Central Economic Work Conference and the “package policy to stabilize the economy”, and keep the economy operating within a reasonable range.
The 19 provinces to be inspected by the State Council of the Communist Party of China are Shanxi, Inner Mongolia, Heilongjiang, Shanghai, Jiangsu, Zhejiang, Fujian, Jiangxi, Henan, Hubei, Hunan, Guangdong, Guangxi, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, and Xinjiang. It also includes Xinjiang Production and Construction Corps.
Analysts said it was another striking response by Li Keqiang at a time when China’s economic downturn accelerated and signaled a full-blown crisis.
Record heat and severe drought in central and western China have severely impacted hydropower, causing many factories to shut down, delivering a fresh blow to a crisis-ridden Chinese economy including sluggish consumer spending and a deeply troubled property market.
The Financial Times reported that high temperatures have driven record-breaking electricity demand in 19 Chinese provinces. The Jefferies report said the drought had created a vicious cycle of insufficient hydropower, which in turn reduced industrial production.
The New York Times reported on August 23 that Sichuan, located in the Midwest, is one of the most populous provinces in China and an industrial base that has developed rapidly in recent years. Under normal circumstances, more than 75% of electricity comes from large hydropower plants. The usual summer rainy season is so plentiful that Sichuan sends a significant portion of its hydropower to other cities and provinces as far away as Shanghai.
But little rain this summer, combined with daytime temperatures that often approach or exceed 40 degrees Celsius, has left rivers and reservoirs with far less water than usual. Power generation at many of Sichuan’s hydropower plants has dwindled to the point where it cannot meet the province’s needs, forcing factories in Sichuan to shut down for up to a week at a time.
China’s central bank announced on Monday that it would cut the market-quoted interest rate on loans with maturities of more than five years by 0.15 percentage points to 4.3 percent as troubles for the Chinese economy continued to mount. The five-year interest rate has a big impact on many mortgage loan rates.
The central bank also cut the market-quoted interest rate for one-year loans by 0.05 percentage point to 3.65 percent.
China’s economy narrowly avoided a recession for the second time, growing just 0.4 percent, according to official Chinese figures.
Iris Pang, ING’s chief economist for Greater China, said most home mortgages are tied to a five-year loan prime rate. So this rate cut is clearly an effort to ease the burden on borrowers. Some local governments have started offering loans to property developers to continue building unfinished homes.
David Chao, global market strategist at Invesco Asia Pacific ex-Japan, said another rate cut hinted at the severity of the downturn in China’s property market, however, it was not enough to increase the liquidity of assets. So far, lower mortgage rates have not translated into higher property sales, he said, because of a lack of confidence in the model of big developers and pre-sales.
In addition, analysts generally believe that the measures taken by the Chinese government will be very limited, and there is little room for monetary policy maneuvering. On the one hand, injecting too much capital into circulation will lead to a continued rise in the inflation rate; on the other hand, interest rate cuts will make Chinese bonds further unattractive, as central banks in other countries are raising the dominant interest rate.
Analysts pointed out that the problem facing the Chinese market is not a shortage of supply, but a lack of buyer confidence.
Last week, China’s central bank cut the lending rate on the medium-term lending facility offered to some banks by 10 basis points to 2.75% from 2.85%.
Beijing has announced another rate cut aimed at revitalizing a faltering economy, with further easing expected in coming months, research firm Capital Economics said in a report.
China’s economic slowdown accelerated, dragging down the yuan’s exchange rate.
On August 23, the onshore exchange rate of the RMB against the U.S. dollar fell to 6.86, hitting a new low since August 2020. In the offshore market, the renminbi was trading at 6.88 against the dollar. The yuan has fallen more than 8 percent against the dollar this year.
Analysts believe the renminbi is likely to weaken further as China’s economic growth slows and the real estate industry faces serious difficulties.
The latest data from China in July showed that the poor performance of many indicators such as factory production, investment, consumption, and youth employment rate was an important factor leading to the devaluation of the yuan, showing that the Chinese economy is facing difficulties.
In the past seven trading days, the spot exchange rate of the RMB against the US dollar fell by more than 1.7%. On the morning of August 23, the Central Bank of China set the central parity rate of the RMB against the U.S. dollar above 6.85 yuan. A weaker yuan helps China’s exports, but it also erodes the value of mainland Chinese stocks and bonds, hurting foreign investors.
International institutions have withdrawn more than $82 billion from yuan-denominated bonds so far this year, a record outflow for the asset class, the Wall Street Journal reported.
Germany’s Süddeutsche Zeitung reported on August 23 that the Central Bank of China announced another interest rate cut on Monday, hoping to boost people’s enthusiasm for buying a house and help the real estate industry get out of the crisis.
According to the report, China’s real estate prices have also shown a downward trend in the past year, and the wealth of the middle class has been shrinking. About two-thirds of their wealth is concentrated in real estate. As a result, China is on the verge of a social crisis; in addition, The real estate crisis has also made local governments grumble, and they rely on selling land for most of their income.
70% of Chinese household wealth is real estate, and this part of wealth may be lost. Financially distressed developers have been unable to complete projects on time, leaving thousands of unfinished buildings across China, prompting a wave of homeowners to stop lending and cut supply. According to the online repository GitHub “WeNeedHome” topic self-reported and compiled statistics, a total of 326 properties were involved in the suspension of loans and supply.
The Wall Street Journal quoted analysts in July estimating that the total amount of mortgage loans facing the risk of supply interruption is about 150 billion to 370 billion US dollars. The incident not only affected the housing market and financial stability, but also hidden the risk of social instability. “Because the 20th National Congress of the Communist Party of China is about to be held.
What’s even worse is that the CCP’s financial difficulties have made it powerless to stimulate the economy.
On August 16, Li Keqiang asked Jiangsu, Shandong and other four provinces to take the lead in stabilizing the economy and complete the task of handing over the finances at the “Symposium of Main Persons in Charge of the Governments of Major Economic Provinces”.
Li Keqiang said that China’s economy is at a “critical point” of recovery.
China Business News reported on August 21 that in the first half of this year, the general public budget revenue of Jiangsu Province and Shandong Province was 463.9 billion yuan and 395 billion yuan respectively, down 17.9% and 8.2% year-on-year.
The report said that although Jiangsu and Shandong provinces are financially powerful provinces, the impact of the CCP virus epidemic this year has exceeded expectations, affecting the normal operation of enterprises and tax revenue. The sharp reduction in fiscal revenue and the sluggish housing market have also made the growth of real estate-related income weak or even declining.
In order to more truly reflect the current economic situation, the official announced the growth rate after deducting the remaining value-added tax refund factors. In the first half of this year, Jiangsu Province and Shandong Province, after deducting the value-added tax credits and rebates, recorded a growth rate of negative 5.8% and positive 6.3% respectively.
Nicholas Borst, director of China research at investment consultancy Seafarer Capital Partners LLC, said that unlike in 2008, the Chinese government is now experiencing real financial difficulties, and the level of debt in the Chinese economy is much higher than before.
Total government debt, including central and local governments, was estimated at around 120 percent of GDP as of December, up from 60 percent in 2014, according to Borst research. What’s more, other forms of government debt, such as off-balance sheet borrowing by local governments, have grown rapidly and are almost five times larger than the central government’s explicit debt.
The task of stimulating the economy in China largely falls on local governments. But local government finances have become even more strained as land sales dry up and tax revenue plummets amid coronavirus disruptions.
The current crisis is more than that. In order to reduce mistakes, many CCP government officials choose to lie down.
Some economists say the Chinese government is not responding as aggressively as it once saw the economy slump, which may reflect the political paralysis ahead of the party’s 20th National Congress this fall. Officials are reluctant to take measures that could be seen as running counter to Xi’s priorities of reducing overall debt and curbing speculation in the property market.
Economists at Société Générale SA wrote in a report that many officials are awaiting the outcome of the 20th Party Congress.
There are also economists who believe that China’s economy is basically helpless, because the problems are not in one or two places. There are so many loopholes that they cannot be filled, and almost all of them are holes. In the past, the loopholes were mainly in these areas. It was okay to tear down the east wall to make up for the west wall. Now, almost all problems have occurred. The east wall has collapsed and the west wall has disappeared. The current crisis is comprehensive, and no one can come. saved. At present, China’s economy is facing a downturn in which “the wall falls and everyone pushes”. Who can save such a situation? Li Keqiang can’t be saved. He’s going to retire anyway, and he’s no longer the prime minister. Now he’s just being stricter on the surface, with extravagant battles and louder thunder. That’s all he can do. Someone else will take care of the mess.