The Chinese Communist Party’s Central Political Bureau held an unusual economic meeting on September 26, highlighting the pressing situation of the Chinese economy in crisis. However, so far there is no sign of the CCP “fully exerting efforts” to rescue the economy.
Morgan Stanley analysts said that the Central Political Bureau does not usually hold economic meetings in September, indicating that the top CCP officials are feeling increasingly pressured by the worsening tightening of currency.
Official CCP media reported on Thursday that the Politburo meeting chaired by President Xi Jinping in September specifically reviewed the economic situation. The meeting also uncommonly acknowledged that there were some “new situations and problems” in the current operation of the Chinese economy. Economic issues are usually discussed at meetings in April, July, and December, implying officials’ stance on the current economic dilemma.
The official media briefing lacked details, stating that the Politburo committed to providing more fiscal and monetary support for the economy and pledged to take more actions to stabilize the real estate industry and prevent it from further decline.
Additionally, CCP officials mentioned a commitment to “issue and use” government bonds to play a “driving role for government investment.”
The official media did not disclose specific numbers for proposed fiscal stimulus measures nor did it clarify whether the existing long-term central and local government bond issuance plans would be extended this year.
The CCP government had initially planned to issue around 5 trillion yuan in long-term national bonds and local government special bonds this year, but most of the funds have been earmarked for infrastructure or other investment projects.
Economists Liu Jing and Xin Ailin from HSBC wrote in a client report that the “direct tone and timing disparities in the Politburo’s notification indicate a new sense of urgency.”
“The situation has changed: economic growth is a top priority,” they said.
Winnie Wu, chief China equity strategist at Bank of America Securities, stated, “In order to expand and stimulate the economy and create demand, the government must increase leverage. But we need to see the numbers… If this is not enough, there will likely be further actions in the coming months.”
According to the Financial Times, economists estimate that given the current size of the Chinese economy – much larger than in 2008 based on GDP, China needs to inject up to 10 trillion yuan in the next two years to fully achieve economic recovery, and these funds must flow to households rather than large infrastructure or industrial projects.
During the CCP Politburo meeting, prior to which the People’s Bank of China and financial regulatory authorities had announced stimulus measures this week, including interest rate cuts, reserve requirement ratio cuts, and reductions in mortgage rates for existing homes.
It is reported that the central bank officials’ official meeting on Tuesday was hastily arranged 48 hours earlier due to concerns about the economy, with senior CCP leaders holding several unplanned closed-door meetings.
Bloomberg recently reported that according to insiders, anxiety has been increasingly spreading among senior CCP leaders in recent weeks.
Insiders added that with this year’s economic growth target becoming increasingly unachievable, senior policymakers have held several unplanned closed-door meetings to discuss economic issues.
One insider expressed particular concern that at least one major coastal province (which significantly contributes to China’s economic growth) warned that it would be difficult to achieve its GDP target.
The sudden shift in leadership by senior CCP leaders has surprised many officials. These subordinate officials have been waiting for months without receiving any feedback from the higher-ups on policy recommendations to revive the economy.
An anonymous CCP regulatory official stated that last week they suddenly received requests from above for more information, forcing some officials to work around the clock before the briefing on Tuesday.
In recent weeks, data has revealed various problems in the Chinese economy, triggering warnings of deflation, leading foreign banks such as Goldman Sachs and UBS to downgrade their forecasts for Chinese economic growth.
They warned that China is facing the danger of falling into a comprehensive spiral of currency tightening, as the sluggish real estate market is dragging down domestic consumption, despite increases in manufacturing investment.
The Wall Street Journal reported that many economists have suggested that greater emphasis should be placed on consumption in the Chinese economy, but this requires significant economic reforms by the CCP, such as expanding healthcare and social security networks.
However, these reforms are politically challenging for CCP leaders, as they believe Western-style “welfareism” is incompatible with their goal of making communist China a technological giant that can compete with the United States.
Moreover, given that Chinese households tend to save rather than spend, stimulating consumption in the short term through policy measures has proven to be difficult. Additionally, the uncertainty surrounding Chinese employment and income further diminishes the effectiveness of stimulus policies.