SinoInsight 1
At least 20 real estate projects (including formal disclosure and pre-disclosure) underwent transfers of equity between May 1 to June 14, according to a June 17 report by the state-run Securities Times. In comparison, only 12 real estate projects saw transfers of equity between April 2018 and April 2019.
Of the 20 real estate projects mentioned above, 15 were previously owned by central enterprises, including China Poly Group, Sinochem Group, Overseas Chinese Town Enterprises Co., Aviation Industry Corporation of China, Power Construction Corporation of China, China General Technology Group, China Electronics Corporation, China National Machinery Industry Corporation, and China Nonferrous Metal Mining Group. Many of the real estate projects that the central enterprises just transferred had suffered losses or were facing insolvency.
According to a recently released report on the national property market for the month of May by Shanghai E-House Real Estate Research Institute, the average land price was 4,389 yuan per square meter, down 3.5 percent from a year earlier. This was the first year-on-year decline in land prices since 2012.
On June 14, China’s National Bureau of Statistics published national real estate investment and sales figures for January to May 2019. The data showed a range of declines across the board.
On June 18, the NBS released data for sales price changes of commercial housing in 70 medium and large-sized cities for the month of May. The data showed a slowing of price increases year-on-year for first, second, and third-tier cities.
OUR TAKE
1. The phenomenon of central enterprises carrying out transfers of equity for their property projects, declining land prices, and slowing property price increases are signs that China’s property market is in danger. These signs follow China Banking and Insurance Regulatory Commission head Guo Shuqing’s warning earlier this month that “history has proven that there is a price to pay for over-dependence on property.”
2. Central enterprises have several “natural” advantages (preferential policies, insider information, capital scale, better financing channels) over private enterprises. So for central enterprises to give up their real estate projects at this time suggests that they smell danger. By getting rid of underperforming projects, central enterprises will be able to better cope with cash flow issues at a time when the property market is headed for trouble.
3. In our China 2019 outlook, we wrote that “property prices will likely fluctuate drastically (small spurt in prices followed by sharp drops). Property prices in some areas may fall by as much as 30 to 50 percent.” Current property market trends are headed in the direction of our prediction. Also, we expect to see sharp declines in property prices in the second half of 2019.
SinoInsight 2
On June 16, the CCP journal Qiushi published an article by Xi Jinping on “strengthening cultural confidence and developing a great socialist culture in China.” The article based on speeches Xi made between October 2014 and October 2017 on the topic of cultural confidence.
Aside from conflating CCP culture (based on “deceit, perniciousness, struggle”) with traditional Chinese culture (based on the Five Constant Virtues of “benevolence, righteousness, propriety, wisdom, integrity”) the article also makes the following points:
- “Socialism with Chinese characteristics,” which is derived from Western Marxism, is supposedly the result of “China’s excellent traditional culture” undergoing “development”;
- The “socialist road with Chinese characteristics” and Party rule must be safeguarded to supposedly “achieve the great rejuvenation of the Chinese nation.”
OUR TAKE
1. The publication of the Qiushi article at this time is a sign that both the Communist Party and Xi Jinping are facing a serious crisis of authority.
The CCP has been facing political legitimacy problems since the bankruptcy of the communist ideology after Mao’s Great Leap Forward and Cultural Revolution campaigns. Deng Xiaoping “rescued” the Party’s legitimacy by shifting it from communism to providing economic prosperity for the Chinese people. However, the steady deterioration of the Chinese economy over the past decade and the recent Sino-U.S. trade war have seriously challenged the CCP’s claim to legitimacy. As a result, the Party needs to step up brainwashing measures like study sessions and the publication of propaganda like the June 16 Qiushi article.
Meanwhile, Xi is facing the consequences of power consolidation. Power consolidation in the CCP inevitably involves leftist/Maoist measures, the marginalization of the “collective leadership,” and the promotion of ideology. Once Xi has consolidated power to a high degree, however, he has to keep doing what enabled his rise to maintain his authority. Thus, Xi has to promote ideas like “cultural self-confidence” from time to time, and especially when he is under pressure for failing to prevent an escalation in the Sino-U.S. trade war and rescuing the economy.
2. Xi’s Qiushi article was published on June 16, the day when over 2 million people took to the streets of Hong Kong to protest controversial amendments to the city’s extradition law that would strengthen the Chinese regime’s control over Hong Kong. An earlier protest saw over 1 million people march in opposition to greater Beijing control. The huge protest marches indicate that the Hong Kong people are very distrustful of “socialism with Chinese characteristics” and CCP rule.
The CCP would undoubtedly be very afraid that mainland Chinese could be inspired by the Hong Kong situation. Hence, the Party would see a need to step up its propaganda and brainwashing efforts to stem an ideological and legitimacy crisis.
