SinoInsight 1
There will be a strict “no cellphone” rule enforced at this year’s Two Sessions, according to reports in Hong Kong media. All members of the National People’s Congress and the Chinese People’s Political Consultative Conference, as well as their entourage and staff, are forbidden from bringing their cellphones into meetings. Walkie-talkies are permitted for use to make emergency communications. Those who violate the “no cellphone” rule will be reported to higher authorities. Additionally, NPC and CPPCC members who participate in meetings during the Two Sessions are forbidden from expressing their views to overseas media.
OUR TAKE
1. Based on our understanding of the CCP factional struggle, we believe that Beijing could enforce very strict security measures at this year’s Two Sessions. In the Feb. 28 issue of this newsletter, we noted that the political and legal affairs apparatus is “comprehensively mobilizing the wartime mechanism during the ‘Two Sessions’ period,” a move which reflects the strong sense of insecurity in the CCP regime.
2. After the voting results for the presidency and vice presidency were announced at last year’s Two Sessions, two rows of PLA troops (Ground Forces, Navy, Air Force) in ceremonial dress marched in from the back of the Great Hall of the People, their clicking heels echoing throughout the chamber. The ceremonial troops later came to attention at the front of the presidential rostrum before the proceedings continued. The unprecedented troop display was likely designed to intimidate the delegates and demonstrate Xi Jinping’s authority over the military. In other words, Xi felt a need to show that he was in charge.
During the 2018 Two Sessions, Xi had sought to add his political thought to the state constitution, scrap term limits for the presidency and vice presidency, and secure Wang Qishan’s election as vice president. Based on our analysis, Xi faced pushback from political rivals on at least the last two of the three moves.
3. If the “no cellphone” rule is indeed imposed at the 2019 Two Sessions, it would be in line with our assessment that the CCP factional struggle is escalating (see here and here).
Xi appears to be facing stiff pushback from political rivals during a crucial period in Sino-U.S. trade negotiations. He likely cannot convene a Fourth Plenum because there is no consensus in the Party’s elite. Thus, Xi might try to force through policies or proposals during the upcoming Two Sessions that allow him to implement the structural reforms which Washington is demanding.
SinoInsight 2
As of Feb. 18, 2019, Chinese property companies have issued 154.645 billion yuan (about $23.059 billion) worth of bonds to domestic and foreign buyers this year, according to data from housing services website hexun.com. Property companies issued more bonds this year as compared to the same period in 2018.
Meanwhile, nearly 419.3 billion yuan worth of bonds issued by China’s real estate industry will mature in 2019, according to data by Wind. In January, property companies repaid almost 47.2 billion yuan worth of bonds. The companies are due to repay bonds worth over 40 billion yuan in the months of February, August, and October, with repayments in the other months of the year in the tens of billions of yuan range (10 billion yuan – 40 billion yuan). Per Wind’s statistics, the total amount of bonds repayable to domestic and foreign bondholders in 2019 is more than twice that in 2018.
OUR TAKE
1. We observed in our China 2019 outlook that “a few major property companies could file for bankruptcy” this year. Based on current trends and property companies showing very high debt risk, our forecast is on track to being fulfilled.
2. Official economic data released thus far this year indicate dim prospects for China’s property industry.
According to data released in mainland media, at least 22 out of China’s 31 provinces have significantly revised down their expected government fund revenue growth for the year, while 16 of the 31 expect to see negative growth. A substantial part of government fund revenue is derived from the sale of land.
According to statistics from Chinese property agency Centaline Group, property sales in 40 first and second-tier cities in January 2019 totaled 252.59 billion yuan, down 15.4 percent from the same period in 2018 and down 32.4 percent from the previous month.
According to mainland media, Evergrande Group chairman Xu Jiayin said at an all-hands marketing meeting which he convened on Feb. 27 that a 10 percent discount can be applied to all Evergrande residential projects in China, and an all-hands market meeting must be held every week in the month of March. According to Evergrande’s figures, the company’s sales in January was 43.17 billion yuan, a 37.8 percent drop from the same period in 2018.
If the current downward trend continues, there is a high probability that some major property companies could go under. Troubles in the property market will in turn heighten risks in China’s financial system.
