Recently, the Chinese Communist Party (CCP) once again introduced major economic stimulus policies to boost the real estate market, but the public remains skeptical, leading to a significant drop in the stock market. Experts believe that the CCP’s shotgun-style economic stimulus plan is a typical example of economic madness, with its repeated failures indicating the need for structural reforms in the Chinese economy.
On Thursday, five departments including the Ministry of Housing and Urban-Rural Development of the CCP held a press conference on “Promoting the Stable and Healthy Development of the Real Estate Market,” announcing that authorities will implement various new measures to “stabilize the property market.”
Ni Hong, Minister of Housing and Urban-Rural Development, stated that the various new measures to stabilize the property market include “canceling four, reducing four, and adding two.” The “canceling four” refers to allowing city governments to cancel regulations on property purchase restrictions, sales restrictions, price restrictions, as well as standards for ordinary and non-ordinary housing. The “reducing four” involves lowering the interest rates for housing provident fund loans and the down payment ratio for housing loans, among others. The two additions include the addition of 1 million units for urban village renovation and dilapidated house renovation, as well as increasing the credit scale of “real estate whitelist projects” to 4 trillion yuan (approximately 562 billion US dollars) by the end of the year.
However, this news sparked dissatisfaction online. In the comments section of the live broadcast of the press conference on “Toutiao News,” many netizens expressed cynicism and even direct criticism.
A netizen from Shandong questioned, “Are these policies just sucking the blood of the people, to make a large profit in the middle? Is this the final madness?” Another netizen from Guangdong wrote: “Is China unable to survive without speculating in real estate?” A netizen from Chongqing commented: “Don’t speak the brutal truth.”
The stock market also reflected a sense of pessimism that day. By 10 a.m., the Shanghai Composite Index opened high but fell, with real estate stocks further declining in the afternoon, dropping below 3200 points. The Hong Kong Hang Seng Index closed down 207 points or 1.02%, briefly dropping below 20,000 points. Real estate stocks plummeted.
Since the end of the “zero COVID” policy, the Chinese economy has continued to weaken, with a deteriorating situation. Many domestic and foreign experts are urging the CCP authorities to take decisive measures to boost the economy.
The CCP has been rolling out a series of major economic stimulus policies. The interest rate cuts, reserve requirement ratio cuts, housing loan rate cuts, and a policy toolbox of 800 billion yuan introduced on September 24 led to a surge in the stock market.
However, in less than half a month, the A-share market soared from 2,689 points to 3,674 points. Yet, the market dropped back to 3,187 points from 3,674 points, with nearly 500 points of adjustment in just four trading days.
George Magnus, a scholar from Oxford University, described the CCP’s current economic stimulus as a “rocket launcher-style” plan, believing that while it may have short-term effects, it would be ineffective in the long run. Restoring market confidence proves to be difficult.
Recently, in an article titled “China’s Attempts to Boost a Sagging Economy are Typical Economic Madness” published in The Guardian, George Magnus pointed out that for the past 16 years, China has launched the fourth “rocket launcher-style” stimulus plan to revive the economy, but the real problem in China requires a structural solution.
He stated, “Chinese (CCP) leaders seem to be invoking Einstein’s definition of madness – doing the same thing over and over again, but expecting different results.”
“These plans have failed in the past because the government has mainly focused on cyclical or short-term prospects. The government believes that rapid relief measures are the way to solve systemic problems like high youth unemployment, bursting real estate bubbles, low productivity, and deflation.”
Regarding the severe drag on the Chinese economy by the real estate crisis, He Xinzeng, Deputy Director of the Institute of Future Urban Studies at the Chinese University of Hong Kong, believes that this problem cannot be solved in the short term or medium term.
He told Voice of America, “From a technical perspective, the problem is primarily facing the dilemma of a funding chain break. However, currently, whether it is the central government, local governments, or developers, they are heavily indebted. It is not realistic to adopt the approach of significantly increasing debt to enhance liquidity at this point.”
“They (the CCP government) are currently using debt to deal with the previous debts, and this mentality is definitely wrong. I think it is even more dangerous and worse than the burst of Japan’s real estate bubble in the 1990s. I can’t see a way out now.”
Finance China recently reported that the CCP authorities may issue special national bonds to raise 6 trillion yuan over the next three years to increase fiscal stimulus efforts. Reuters also mentioned that authorities are expected to issue 2 trillion yuan of special sovereign bonds this year to support economic recovery.
Magnus stated, “China’s problems require structural or fundamental economic reforms, which require political changes, something that is a pipe dream for its Leninist government.”
“Undoubtedly, Beijing already possesses and hopes to expand advanced industrial expertise and leadership in some key enterprises and industries. However, these islands of technological dominance exist in an ocean of macroeconomic imbalances and difficulties, and only through more liberal and open economic reforms can these problems be truly addressed,” he said.