On September 26th, the Central Political Bureau of the Chinese Communist Party held an economic conference that raised eyebrows due to several unusual occurrences. Not only was the meeting time exceptional, but also China’s top leader, Xi Jinping, uncommonly acknowledged the emergence of “new situations and problems” in the Chinese economy. He emphasized the need to “support officials in carrying out their duties.” Experts believe this leak from the top leadership suggests that not only is China facing complex economic challenges, but it is also entangled in a political predicament of officials shirking responsibilities.
In recent days, government stimulus policies have boosted the stock market, but analysis indicates that these effects may be short-term, with long-term impacts still to be observed.
According to Xinhua News Agency, during the September 26th meeting of the Central Political Bureau, discussions on economic work emphasized the need to intensify countercyclical adjustments in fiscal and monetary policies. For the first time, there was a mention of stabilizing the real estate market and controlling the increment of commercial housing construction, optimizing existing stock, improving quality, increasing lending for select projects, and supporting the activation of unused land.
Xi Jinping unusually admitted during the meeting that China’s current economic situation is facing “new circumstances and problems.”
Traditionally, the Central Political Bureau meets monthly, with economic-related meetings held mainly in April, July, and December to discuss economic work for different periods. Occasionally, like in 2016 and 2018, October meetings may irregularly touch on economic themes. The decision to analyze the economic situation ahead of schedule at a September meeting this year is seen as highly irregular.
Even the Economic Observer, a mainland Chinese media outlet, described this Central Political Bureau meeting as “unexpected.”
Well-known blogger “Financial Truth” on Platform X commented, “The fact that an economic meeting of the political bureau was held in September for the first time indicates that China’s economy has reached an extremely dangerous point, at least in the eyes of those in Beijing who believe it threatens the stability of the regime.”
Regarding the “new situations and problems” Xi Jinping referred to in China’s economy, U.S.-based economist David Huang analyzed for Dajiyuan that there are structural economic issues, heavy local and central government debts, significant downward pressure on the economy, weak economic growth, struggles in the private sector, a sluggish domestic consumption market overall, and increased unemployment among both young and older age groups.
The mention of “promoting the stabilization of the real estate market” during the meeting suggests that previous policies may not have yielded the expected outcomes.
Huang believes Xi Jinping’s perspective on the economy has significantly shifted. Previously, Xi had emphasized the principle of “housing is for living, not for speculation” and held strong biases against the real estate sector. Now, due to local fiscal crises, he might be considering leveraging real estate or new domestic asset bubbles to share the burden of the country’s debt issues with the people, potentially leading to more aggressive measures to boost the market.
Sun Guoxiang, Associate Professor of International Affairs and Business at Nanhua University in Taiwan, told Dajiyuan that the slowdown in economic growth is likely the most crucial aspect of the new situations and problems mentioned by Xi. This slowdown is mainly attributed to crises in the real estate market, as well as new problems in employment and consumption.
Zhao Lanjian, a former senior Chinese mainland media person, mentioned that the biggest problem with the Chinese Communist Party is the deliberate disruption of the natural state of productive forces and production relations since its establishment. This limiting and interfering with the environment crucial for human survival, seeking to maximize the interests of its ruling class during operation.
“The new economic situation shows Xi Jinping’s serious misjudgment on economic development, and he is eager to introduce extraordinary measures to prevent the collapse of the Communist regime.”
Xi Jinping specifically emphasized the need for officials to take responsibility and urged for the thorough implementation of the concept of “three discernments,” supporting those who bear responsibilities and backing those who work diligently.
As per the official definition, the “three discernments” concept, proposed by Xi in 2016, aims to distinguish between mistakes made in early trials from intentional wrongdoings, differentiate between errors in exploratory tests without clear restrictions and those violating explicit prohibitions, and separate unintentional negligence from seeking personal gains, among others.
Huang suggested that this indicates Xi Jinping is facing the dilemma of officials being inert. “In the past five years, officials were basically inactive, fearing making mistakes. With the excessive power of the disciplinary committee, every official is afraid to take action. Now he (Xi) wants to reverse the work status of public servants over the past five years.”
Sun Guoxiang added that Xi Jinping’s anti-corruption campaign and efforts to rectify the economic order have led to some local officials being overly cautious about implementing policies, fearing crossing red lines, which in turn has displeased Xi. Meanwhile, due to the economic challenges in local regions caused by the decline in the real estate market, financial difficulties are pushing local authorities to wait for central government assistance, creating a dilemma between the central and local governments regarding policy implementation.
With the Chinese real estate industry continuing to struggle, state-owned enterprises and local governments have refrained from land acquisitions this year, and Beijing’s directive for local governments to “take back unsold properties” has been met with lukewarm responses.
For instance, to reduce the inventory of real estate, the CCP demanded in April that local governments acquire unsold commercial properties for public housing, followed by the People’s Bank of China announcing a 300 billion yuan re-lending plan for public housing in May, urging over 200 cities to implement the scheme. By June, the Ministry of Housing and Urban-Rural Development expanded the plan to the county level, encouraging 387 lower-level counties to participate. However, Bloomberg reported that as of August, only 29 cities had responded to the rescue plan, and specific regulations were lacking.
Following the Central Political Bureau meeting yesterday (26th), the Chinese Communist Party Central Financial Office and the China Securities Regulatory Commission jointly issued directives in the evening, signaling the promotion of long-term capital entering the market.
Huang believes that the state-owned shares have risen to around 3500 points, an increase of about 12%, due to the recent monetary easing policies of the central bank. China’s A-shares market operates differently from global stock markets, relying more on governmental control. Hence, when there are favorable policies and monetary easing, impacted by the central government, there will naturally be a response as the market is heavily influenced by authorities. As for the rise in the Renminbi exchange rate, it is mainly tied to the Federal Reserve’s interest rate cuts and is not significantly related to China’s economy.
Huang reckons that the signs of improvement in the Chinese economy are mostly positive indicators thus far, cautiously requiring further observation to determine whether fundamental structural issues in the economy are being addressed.
He believes that to assess the future direction, it is essential to monitor whether China initiates economic reforms domestically and if there will be political enlightenment. Externally, the improvement in Beijing’s international relations with the United States and the European Union would also be crucial. “If one of these aspects is lacking, the sustainability might not be high, and the current policies are mostly effective in the short to medium term, even short term.”
Sun Guoxiang stated that recent market rebounds are primarily due to policy interventions that have boosted market confidence in the short term. However, the actual economic improvement is not guaranteed. China still faces structural problems, including a persistently weak real estate market, lackluster consumption growth, limitations on private enterprise development, declining exports, and local government debt.
The National Bureau of Statistics of the Chinese Communist Party released the latest data on profits of large-scale industrial enterprises today, reporting a 17.8% year-on-year decrease in profits for August, the lowest since May 2023. According to Yu Weining, a statistician at the industrial division of the National Bureau of Statistics, one of the reasons is insufficient effective market demand.
Sun Guoxiang explained that in economics, there is a principle called diminishing marginal returns, where excessive policy intervention by the Chinese government may lead to diminishing market confidence gradually. “Especially when the fundamental issues remain unresolved, the future policy effects may fall short of expectations, leading to market readjustments.”
Zhao Lanjian is not optimistic about the recent consecutive rebound in the Chinese stock market. He emphasized that China’s economic issues in the realms of the stock market, investment, markets, and employment are all consequences of the authorities’ authoritarian political system’s backward policies. “Short-term improvements may occur, but it won’t change the fundamental problem. The political system determines the current economic quagmire.”