Two pain points in Xi Jinping’s heart
According to Xinhua News Agency, the official media of the Communist Party of China, Xi Jinping, General Secretary of the Communist Party of China, presided over a meeting of the Political Bureau of the Central Committee of the Communist Party of China on February 25 to discuss the draft of the “Government Work Report” that the State Council of the Communist Party of China intends to submit to the Fifth Session of the Thirteenth National People’s Congress for deliberation. “Comprehensive Report on the Eighth Round of Inspections of the Nineteenth Central Committee” and “Report on the Key Work of the Central Inspection Team in 2021”, etc.
The meeting emphasized that the 20th National Congress of the Communist Party of China will be held this year, which is a very important year. The work must adhere to the word “stability”, continue to do a good job of “six stability” and “six guarantees”, continue to improve people’s livelihood, and focus on stabilizing the macroeconomic market. maintain social stability.
The meeting proposed that it is necessary to strengthen the centralized and unified leadership of the “Party Central Committee” over financial work, prevent and resolve financial risks, keep the bottom line of no systemic risks, and maintain the overall situation of financial stability.
According to the meeting, the eighth round of inspections of the 19th Central Committee has achieved remarkable results, and found that there are still many outstanding problems in financial units, some of which are common and must be “seriously resolved”.
According to the report, the meeting fully affirmed the work of the Central Inspection Leading Group of the Communist Party of China in 2021 and agreed to its work arrangement for 2022.
The current problems facing China’s economy may have gone beyond the triple pressure of “shrinking demand, supply shocks, and weakening expectations” imagined by the CCP, but rather the “necrosis” of “basic cells”. Dare to expand investment, and even quit the job.
On February 18, 12 departments of the Communist Party of China, including the National Development and Reform Commission, issued a document requesting banks to continue to make profits to the real economy and take this as an assessment standard for the banking industry.
This also happened in 2020, after the CCP virus caused a cliff-like decline in the Chinese economy. On June 17 of that year, the executive meeting of the State Council of the Communist Party of China revealed that it would promote the financial system to “reasonably” transfer profits of 1.5 trillion yuan to various enterprises.
Opponents believe that this move will squeeze the profits of the banking industry and cause a direct blow to the industry; supporters believe that the weak real economy will also jeopardize bank profits in the future. Costs have fallen, and “profits” are justified.
Chen Zhiwu, a well-known financier and director of the Asia Global Institute of the University of Hong Kong, analyzed in the “2022 World Economic Forum” on January 11 this year that China’s economic downturn is an inevitable trend, and the prosperity of economic growth in the past 40 years is no longer there. See.
Chen Zhiwu bluntly said that the data of China’s investment, private consumption and exports have declined, and private enterprises are “flattening”, which poses a great challenge to the Chinese economy.
Chen Zhiwu emphasized that in terms of consumption data, it is less than 5%, which has never been experienced in the past.
For the whole year of 2022, Chen Zhiwu believes that the new Cold War between the United States and China may worsen. In the past, Trump was eager to decouple from China, but now it is China itself decoupling from Western countries. Historically, these situations have posed greater challenges to China’s future economic prospects.
A “grey rhino” in hot pursuit
The CCP’s local government debt has been under the spotlight, and it is one area where China’s financial system is already showing signs of collapse.
Due to the rapid decline of China’s real estate, the local government of the Communist Party of China, which has always relied on “land finance”, has fallen into a financial crisis.
According to a Bloomberg analysis of budget reports released by 30 provinces in China, some places expect general revenue this year to fall short of the expected national economic growth target of at least 5%. A downturn in the housing market is likely to continue to affect land sales in most regions, with the wealthiest provinces being hit the hardest.
Deteriorating fiscal conditions, which will make it difficult for provinces to pay for infrastructure spending, fuel economic growth and be forced to borrow to fund new construction projects, will also push up debt levels, Bloomberg reported. In the released budget report, 28 provinces expect fiscal revenue growth this year to be slower than in 2021, and 15 of them predict general fiscal revenue growth will be half or even slower than last year, including Beijing, Zhejiang, Jiangsu and Chongqing and other key areas.
The downturn in China’s real estate in 2021 will have an impact on land demand, and in 2021, many provincial government capital revenue will be greatly reduced. About 90 percent of provincial finances depend on land sales, and Bloomberg estimates that revenue is expected to decline in 17 provinces this year. Sichuan province is expected to drop by 50%, Jiangxi is expected to drop by nearly 37%, while wealthier regions such as Beijing, Shanghai, Zhejiang and Jiangsu are expected to drop by at least 18%.
According to the official data of the CCP, the explicit debt of local governments has reached 27.5 trillion yuan. If the implicit debt of 45 trillion yuan of local urban investment is added, the debt scale is about 70 trillion yuan, and the annual interest cost alone is as high as 3 trillion yuan, accounting for 3 trillion yuan. 30% of the general government revenue (10 trillion in 2020).
On October 2, 2021, Wall Street brokerage Goldman Sachs pointed out that the total hidden debt of the CCP’s local governments has ballooned to more than half the size of the national economy.
According to a rough calculation by Lou Jiwei, the former Minister of Finance of the Communist Party of China, more than 50% of the fiscal revenue of about a quarter of the provincial finance will be used for debt repayment.
In March 2021, the CCP’s two sessions have raised local hidden debts to “national security issues”, and the CCP will hold the “two sessions” in March this year. The local government debt risk will constitute a huge “grey rhinoceros” that cannot be avoided for the operation of the CCP regime.