Former governor of the People’s Bank of China (PBOC), Zhou Xiaochuan, seems skeptical of the authorities’ recent introduction of what they call a “historic” housing market rescue policy, recently stating that China should “learn from Japan’s experience.” Zhou, who spoke out during the critical moments of the US-China trade war, was seen as indirectly criticizing Xi Jinping’s understanding of the economy. His hesitation towards the government’s housing market policies has once again sparked public attention.
On May 17, the Chinese Communist Party (CCP) introduced a housing market rescue policy known as the “5.17” policy. Following this, major first-tier cities like Shanghai, Guangzhou, and Shenzhen subsequently implemented various policies, lowering property purchase thresholds.
On May 27, Shanghai, one of the four major first-tier cities, took the lead in implementing the “5.17” policy by releasing the “New Shanghai Nine Measures.” These measures include reducing the social security or individual income tax payment period for non-local residents to purchase a house from a minimum of 5 years to 3 years and lowering the down payment for single residents not holding local household registrations to 20% for purchasing a second-hand house across the city, among other incentives.
Following Shanghai’s lead, Guangzhou and Shenzhen also rolled out their respective policies. On May 28, Guangzhou reduced the social security or individual income tax payment period required to purchase housing in restricted areas from 2 years to 6 months, which is the lowest among first-tier cities. Additionally, the minimum down payment percentages for the first and second commercial loans were lowered to 15% and 25%, respectively. Furthermore, the policy enables the third property to be eligible for a loan after clearing two previous loans and removes sales restrictions.
Shenzhen issued an announcement on May 29, lowering the minimum down payment percentage and the floor loan interest rate for house purchases. The down payment percentage for a first house loan was reduced from 30% to 20%, and for the second house loan, it was lowered from 40% to 30%.
According to statistics from the China Index Academy, more than 80% of Chinese cities have started implementing the “5.17” policy. Over 200 cities at the prefectural level or above have explicitly implemented a 15% minimum down payment ratio for first homes, and over 250 cities have eliminated the lower limit on mortgage rates.
Can the “5.17” policy alleviate the impact of the real estate market crisis in China on the country’s economy and society? The top echelons of the CCP do not seem optimistic and are more concerned about the looming financial crisis that the real estate crisis could trigger. Just four days after the introduction of the “5.17” policy, on May 21, He Lifeng, director of the Office of the Central Financial Committee of the CCP, issued a warning, emphasizing the need to “firmly guard against systemic risks,” and “rigorously control risks interwoven between the real estate, local government debt, and local small and medium-sized financial institutions.” He Lifeng’s mentioned risks are all related to the real estate crisis.
Zhou Xiaochuan, the former PBOC governor who had not been seen for several years, recently expressed his views. He seems to have reservations about the so-called strongest measure to rescue the market introduced by the authorities, suggesting that China should “learn from Japan’s experience.”
On May 23, during an interview with Nikkei, Zhou Xiaochuan commented on the outlook of China’s real estate market, describing the current downturn as an unprecedented experience. He admitted that the market’s decline is faster than what policymakers had anticipated. Zhou also stressed the need to learn from other countries that have dealt with real estate bubbles over many years, particularly highlighting Japan’s experience.
Zhou Xiaochuan specifically mentioned that the speed of the decline exceeded the expectations of the “decision-makers.” In the current political atmosphere of “one ultimate decision” prevailing in all aspects of the CCP, Zhou Xiaochuan seems to be issuing a “reminder” to CCP leader Xi Jinping.
North American investment advisor Mike Sun told Dajiyuan, “The speed of the housing market decline being faster than expected indicates that the Xi Jinping regime has misjudged China’s economic situation and future development trends, overestimating the purchasing power of the people.”
Following the burst of the real estate bubble in Japan, the country implemented several related policies. Regarding the financial system, Japan quickly established the “Resolution and Collection Corporation” (RCC), which began restructuring financial institutions and handling a large amount of bad assets.
At that time, the Bank of Japan set a framework where dealing with bad debts was not simply about addressing the negative legacy of the bubble economy. It also required gradually improving the industrial structure and enhancing the new capabilities to address bad debts under the pressures of enterprise transformation and adjustment. This indicated the need to adjust Japan’s economic structure, which is closely intertwined with finance and industry.
The Bank of Japan believed that in addressing bad debts, it was necessary to strengthen the earning capacity of financial institutions and enterprises, continuously examine the existing financial system, business supervision of financial institutions, and tax systems. Moreover, to solve the bad debt issue from the perspectives of industrial and regional policies, enhancing enterprises’ earning capacity and implementing comprehensive measures for corporate regeneration were deemed indispensable.
After retiring in 2018, Zhou Xiaochuan, who had been out of the public eye for many years, emerged to comment on the real estate crisis, suggesting that “decision-makers” should “learn from Japan’s experience.” This subtly echoes his previous comments during the escalation of the US-China trade war, which were seen as indirectly criticizing Xi Jinping for “not understanding economics” and possibly exacerbating US-China relations.
In 2019, amid the potential escalation of the US-China trade war, Zhou Xiaochuan, who had stepped down as PBOC governor about a year prior, attended a forum in Beijing. When discussing the US-China trade war, he pointed out that observing the current global economy, some newly appointed leaders completely disregarded economic theories and common sense in their system and policy choices, seemingly relying mainly on commercial intuition.
Zhou Xiaochuan believed that such an approach that lacked respect for science and the accumulated theories and knowledge of the past would ultimately hit a wall.
Regarding Zhou Xiaochuan’s remarks, at the time, the CCP media claimed that he was alluding to US President Trump. However, the Hong Kong Apple Daily stated that netizens felt Zhou Xiaochuan was subtly criticizing CCP leaders for “only talking politics and not understanding economics.”
The report mentioned that especially Zhou Xiaochuan’s final comment, “Economics is not as pervasive and deep as imagined, and the study and education of economics still have a long way to go,” should be seen as a commentary on the situation in mainland China.
David Dalle, a political science professor at the University of Chicago in the United States, believes this reflects that China’s so-called elite has begun to have more discussions and reflections since the outbreak of the US-China trade war. Some are aware that the CCP is not yet on par with the United States.
Zhou Xiaochuan served as the governor of the PBOC from 2002 to 2018 for a total of 16 years, making him the longest-serving governor in CCP history, spanning Jiang, Hu, and Xi Jinping’s leadership. In 2013, Zhou Xiaochuan reached the retirement age of 65, but he remained as the governor of the PBOC, breaking the CCP’s convention of not exceeding two terms.
The current real estate crisis in China following the bursting of the bubble is wreaking havoc across various sectors of the economy, politics, and society. As one of the most authoritative figures in the CCP’s financial system, Zhou Xiaochuan’s call for “decision-makers” to learn from Japan’s experience in handling the collapse of the real estate bubble may indicate that a more challenging crisis is looming than what meets the eye.