Before the upcoming third plenary session in July, the Chinese Communist Party’s Ministry of Public Security has publicly declared its involvement in various aspects of stabilizing the economy, including finance, local debt, and real estate. Experts believe that the real estate crisis has evolved into a comprehensive economic crisis, and the CCP resorting to public security to maintain stability may only offer short-term control, as the long-term trust crisis continues to escalate.
Official sources from the CCP stated that the expanded meeting of the Party Committee of the Ministry of Public Security was held in Beijing on June 5th, emphasizing loyalty to the party leader and asserting the need to “firmly uphold the bottom line of security.” The meeting highlighted the coordination with relevant departments to “strengthen financial risk monitoring and early warning, and cooperate in key areas such as risk prevention and control and resolution in small and medium financial institutions, local government debt, and real estate.”
While the Ministry of Public Security itself has an economic crime investigation bureau, the direct involvement of public security in the professional fields of finance, local debt, and real estate markets during this sensitive period before the plenary session has drawn attention.
Previously, on April 22nd, the State Council of China conducted a special study on the capital market, with Wang Xiaohong, in charge of public security, delivering a speech, which was deemed uncommon. The CCP’s Ministry of State Security, which has been lurking in the shadows on financial security and capital market issues, has also been increasingly vocal since last year.
Regarding this situation, Taiwanese senior political economist Wu Jialong told Dajiyuan on June 11th that it is evident that the current economic problems in China are challenging to handle, and the authorities are unable to come up with effective solutions. As financial systemic risks trigger a chain reaction, the real estate issue is intertwined with local debts, as well as debts of state-owned enterprises, surpassing the crisis of large private enterprises’ debts.
Wu Jialong believes that during this sensitive period before the plenary session, the authorities are emphasizing security, indicating that the CCP Central Committee is now practically giving up on reigniting economic growth, resorting to prioritizing party and regime preservation above all else.
“Originally, the plenary session was supposed to discuss economic issues, but now security has replaced development, emphasizing stability maintenance and risk control over investment.”
When reporting on the recent Ministry of Public Security meeting, mainland Chinese media Caixinnet titled it as “Public Security Ministry: Cooperate in risk prevention and resolution in real estate and other areas.”
Sun Guoxiang, an associate professor in the Department of International Affairs and Business at South China University of Technology, told Dajiyuan that the information released during the Ministry of Public Security meeting was startling, as the CCP is intensifying the relationship between public security and the real estate sector. This demonstrates the instability of the Chinese real estate market leading to social dissatisfaction and turmoil, requiring enhanced control by the public security sector; furthermore, significant fluctuations in the real estate market could affect overall economic stability.
“It may evolve from a real estate crisis to a comprehensive economic crisis. The irony is that involving public security in real estate issues goes beyond addressing individual problems, becoming more of a domino effect.”
As the Chinese real estate market continues to struggle, the authorities announced substantial market rescue policies on May 17th, including reducing down payment ratios for property purchases. The first home’s down payment ratio was adjusted to not less than 15%, and the second home’s commercial loan minimum down payment ratio adjusted to not less than 25%; secondly, reducing interest rates on housing provident fund loans and eliminating the lower limit on commercial mortgage rates.
In cities with excessive inventory of commercial housing, the government can reasonably purchase some commercial housing at low prices for affordable housing. The CCP’s central bank has also established a 300 billion RMB (41.5 billion USD) refinancing scheme for state-owned enterprises for affordable housing.
However, the market greeted the CCP’s May 17th market rescue policy with skepticism. According to Bloomberg’s analysis of the Chinese property developers’ stock index, Chinese real estate stocks fell by 3.3% on June 6th, accumulating a nearly 21% decline since mid-May.
The real estate destocking measures by the authorities have not provided much encouragement to developers. As reported by Reuters on June 10th, the 300 billion RMB loan plan could potentially bring 500 billion USD worth of bank financing for local state-owned enterprises to purchase completed but unsold houses. However, some private developers found that very few of their projects were selected for loans.
Sun Guoxiang stated that the CCP’s policy operations are short-term, aiming to alleviate property overstock pressure but potentially causing three negative impacts.
“Firstly, by converting unsold houses on a large scale into affordable housing, the supply-demand relationship in the real estate market may be distorted, affecting the market’s normal pricing mechanism. Secondly, if developers cannot generate reasonable profits through normal sales, it will impact future investment and development confidence. Thirdly, providing affordable housing requires government subsidies and support, further increasing the financial burden on local governments.”
He believes that the authorities’ market rescue policies have not solved the problems but merely delayed the detonation time of these unexploded bombs.
Wu Jialong stated that the fundamental issue in the Chinese real estate market stems from the excessive reliance on real estate investments initially, leading to overinvestment and entangling local financial problems. The land finance that began in the late 1990s has become unsustainable.
He analyzed that China’s population is aging, and unemployed individuals cannot afford mortgage payments, resulting in giving up properties. Therefore, the real crisis in the real estate sector lies in the employment crisis. State-owned enterprises cannot create job opportunities as efficiently as private enterprises, while large private enterprises cannot match small and medium-sized enterprises. However, small and medium-sized enterprises struggle to obtain loans from banks, coupled with the pandemic causing many of them to go bankrupt, resulting in insufficient job opportunities and demand.
With continuous debt explosions in real estate companies and frequent homeowner rights protection issues over unfinished properties in various parts of China in recent years.
Sun Guoxiang stated that the Chinese real estate market has long-term structural problems that cannot be resolved through policies. The ineffectiveness of the authorities’ market rescue policies has led to a lack of confidence in the real estate market. Once confidence is lost, no matter whether it is buyers or investors, the expectation is pessimistic.
He believes that the CCP’s decision to strengthen stability maintenance through public security may provide temporary control, but the long-term trust crisis will expand, with accumulating public discontent, ultimately leading to a hollow outcome.