In recent days, the Chinese Communist Party has rolled out a series of stimulating economic policies, promising fiscal support at a high-level meeting and cutting interest rates while distributing funds to rescue the market. Experts reveal that these market-saving measures amount to a reckless gamble, using the savings and pension funds of the people as gambling capital.
On September 26, the Chinese Communist Party Political Bureau held an unusual economic meeting to discuss macroeconomic issues. Acknowledging the “emergence of new situations and problems in the economy,” they proposed implementing new policy measures to strongly boost economic growth, increase the counter-cyclical adjustment intensity of fiscal and monetary policies, ensure necessary fiscal expenditures, and cut interest rates while distributing funds to support the market.
For the first time, the meeting proposed promoting “stabilizing the declining trend” in the real estate market, adjusting housing purchase restrictions, reducing interest rates on existing housing loans, and supporting the revitalization of idle land to ensure the completion of annual economic development goals.
Traditionally, the Chinese Communist Party Political Bureau holds economic meetings in April, July, and October, with decisions on the focus of economic work for the following year made in December. However, holding a meeting in September is notably unusual.
Professor Xie Tian from the Darla Moore School of Business at the University of South Carolina told Dajiyuan on September 28: “This reflects that China’s economic crisis is very severe, with the entire real estate market collapsing, leading to an overall economic decline, rising unemployment rates, and it has now reached a very critical point where measures must be taken to stimulate the real estate economy.”
Xie Tian believes that this approach is of limited effectiveness, stating, “Because China has a serious oversupply of houses, with several hundred million units currently sitting vacant, and 90% of the Chinese population already owning property. Moreover, house prices are still falling, and no one wants to buy a house when prices are dropping. So how to stimulate and encourage people to buy homes when no one is willing to do so during a price decline?”
The real estate industry is a cornerstone industry for China’s economic growth, with its size once accounting for over a quarter of China’s GDP. Since the Chinese Communist Party began the “deleveraging” process in the real estate industry in 2021, tightening bank loans, large real estate enterprises have defaulted one after another, leading to a debt crisis spreading from the real estate industry, causing significant impact on the Chinese economy.
From September 24 to 27, the People’s Bank of China, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission, among other financial departments, announced a series of heavyweight financial policies to boost the economy. These policies include interest rate cuts, lowering reserve requirement ratios for deposits, reducing down payment ratios for mortgage loans, providing approximately 1 trillion yuan in long-term liquidity funds to the financial market, and allocating 800 billion yuan to support the stock market.
Moreover, commercial banks are allowed to use a higher proportion of assets for lending, and the Chinese Communist Party plans to issue around 2 trillion yuan in bonds. Reuters revealed that 1 trillion yuan will be used to stimulate public consumption, with an additional 1 trillion yuan raised to help local governments alleviate debt pressure.
Economic scholar Li Hengqing analyzed for Dajiyuan, stating that the Chinese Communist Party’s series of market-saving policies are essentially a final reckless gamble, using the savings, social security funds, and pension funds of the Chinese people as gambling capital.
He cited the example of the Central Bank reducing the reserve requirement ratio by 0.5 percentage points. After the adjustment, the average reserve ratio of banks has decreased to 6.6%, which he described as a risky move.
“What is the reserve ratio used for? It’s where a depositor stores 100 yuan, and then the central bank requires commercial banks not to lend out the full 100 yuan. You need to set aside 10% in the central bank’s vault, in case of bank runs when the bank cannot repay depositors’ money, as the reserve.”
“As a result, for the sake of stimulating the economy, increasing liquidity, they keep lowering the reserve requirement ratio. It has decreased from the previous 11% to an average of 6.6% now.”
Li Hengqing pointed out that “China’s economy is now on the brink of collapse, yet they keep lowering the reserve ratio to pump more liquidity into the economy. When the economy improves, they will raise the reserve ratio again to cover the risky parts.”
“But what if the economy continues to deteriorate? It’s like a gambler who keeps doubling down until they go red-eyed, even borrowing money to gamble. Remember, the bank’s money belongs to depositors. It’s as if they are using depositors as bets.”
A review by China’s financial magazine Caixin in May found that China’s deposit balance is nearly 30 trillion yuan, with household deposits accounting for about 14.5 trillion yuan, more than double in the past eight years.
Ms. Sun, a senior accountant in mainland China, told Dajiyuan: “The authorities’ idea is that despite having money in the bank, people are still not spending. Now, with this series of market-saving measures, they are using your savings to boost the economy, and I’ll help you consume. It’s actually robbing people’s savings, which may end up being completely looted.”
Li Hengqing noted that the Central Bank of China lowering the benchmark interest rate (cutting rates) is also a weak solution.
“It is also to increase the injection of liquidity to stimulate the economy. However, the portion of bank interest spreads, the international standard requires it to be 1.8%, below which they are losing money. Currently, China’s bank interest spread has decreased to 1.54%, clearly incurring losses.”
“The ones losing money are the major state-owned banks. Even after losing money, they won’t be held accountable, they can still issue money. But now their ability to issue money is getting smaller and smaller, and banks are laying off staff and reducing salaries. In such circumstances, continuing to lower the benchmark interest rate, from 1.7% to 1.5%, is actually adding insult to injury for the banking industry.”
Li Hengqing believes: “With more than 4,700 banks now, especially small and medium-sized banks are being forced out. Large state-owned banks have government support to hold out,” this gambling mentality is essentially digging a huge pit, leading to an inevitable bank collapse.”
As China’s economy worsens, the wave of bank closures continues to expand. According to data released by the China Banking and Insurance Regulatory Commission, at least 50 small and mid-sized banks have dissolved in the first seven months of this year, with nearly 1,500 bank branches closed.
On September 26th, the China Securities Regulatory Commission announced the joint issuance of a guidance document called “Guiding Opinions on Promoting Long-Term Capital Market Entry,” proposing that pension and insurance funds enter the market to support the capital market.
Li Hengqing said, “The boldness of this measure is even greater. In order to boost the stock market, bond market, and real estate market, they want to introduce long-term funds into the real estate market and the stock market, which is extremely irresponsible.”
“These so-called long-term funds are targeting social security funds, health insurance parts, and pension funds. The third part is investment funds, such as life insurance, and these funds are now all to be invested in the real estate and stock markets.”
“China’s real estate and stock markets are currently the most dangerous industries. This essentially puts the holders of pension funds into jeopardy; in the end, pension and insurance funds may be completely looted.”
Veteran media figure Yan Chunguo also posted on Facebook, stating that the market-saving measures rolled out by the Chinese Communist Party are just limited administrative means to save the collapsing market economy. Now that the economy is rotten at its core, the root cause is the Chinese Communist Party; whoever follows the CCP into this quagmire will not be able to extricate themselves, and more people are looking forward to the CCP’s downfall to change their fate.