Xi’s ‘whole-process people’s democracy’ is a fig leaf; China’s property sector faces a harsh winter

Oct. 13 – Oct. 14
The CCP held a central conference on work related to People’s Congresses in Beijing. The conference was attended by all members of the Politburo, leading cadres in Party, government, and military positions, and People’s Congress directors at the sub-provincial level and above.Xi Jinping delivered a speech on the theme of democracy at the conference. He said that democracy is a “shared value of humanity” and “a key tenet unswervingly upheld” by the CCP. The PRC’s People’s Congress system, which “adheres to the leadership of the CCP and the basic principles of Marxist state theory,” is a “good system that guarantees that the people are the masters of the country and realizes the great rejuvenation of the Chinese nation.” Xi added that the People’s Congress system is a “great creation in the history of human political systems,” as well as “a brand new political system of great significance in the history of political development in China and even in the history of political development in the world.”Xi stated eight aspects for determining whether a country’s political system is “democratic and effective”:

Xi said that whether or not a country is democratic should be judged by the country’s people and the international community, and not by a “self-righteous minority.” He added that there are “many ways to achieve democracy, and there is no one-size-fits-all model.”Xi stressed that the People’s Congress system is an important “institutional vehicle” for realizing “whole-process people’s democracy.” “Whole-process people’s democracy” (全程人民民主) is a “fully-linked, omni-directional, all-encompassing democracy,” and is the “most extensive, true, and effective socialist democracy,” he explained. Xi added that “whole-process people’s democracy” has been upheld and perfected “under the leadership of the Party.”

Oct. 15
1. Xinhua published an op-ed (“Learning in Progress  | Xi Jinping’s Profound Exposition on Whole-process People’s Democracy”; “學習進行時丨全過程人民民主，習近平深刻論述”) on its website touting Xi Jinping’s speech at the central conference on work related to People’s Congresses. The op-ed described Xi’s speech as a “programmatic document full of the power of Marxist truth.”

2. The Standing Committee of the National People’s Congress Party group held a meeting to “study and implement General Secretary Xi Jinping’s important speech at the central conference on work related to People’s Congresses and the spirit of the conference.”

The meeting described the conference as a “milestone” in the “construction of socialist democracy in China. The meeting also noted that the conference demonstrated the strong “confidence and stamina” of socialist democracy with Chinese characteristics.

3. Qiushi magazine published Xi Jinping’s speech at the 10th meeting of the Central Financial and Economic Affairs Commission on Aug. 17, 2021 promoting “common prosperity” (紮實推動共同富裕).

4. Xinhua republished a piece in the Central Party School publication Study Times titled, “Xi Zhongxun’s Family Characteristics” (習仲勳的家風).

The article listed nine “family characteristics” of Xi Jinping’s father Xi Zhongxun, namely, “loyal to the people; strict in self-discipline; diligent and frugal; low-profile and modest; firm and indomitable; frank and sincere; honest and open; benevolent and charitable; fatherly kindness and filial piety.”

The article promoted Xi’s integrity and character through extolling the Xi clan’s “family characteristics,” and hopes that the Xi clan’s “values” have “special revelation and practical significance” for corrupt officials.

1. Xi Jinping and the CCP’s promotion of “whole-process people’s democracy” is their latest effort to dominate the U.S. and Western democratic countries in the realm of ideology.

Like all communist parties and regimes, the CCP has always played fast and loose with the concept of democracy in its struggle for survival and dominance. When the CCP is in a weaker position, it promotes “democracy” to camouflage its radical Marxism-Leninism, dupe the Chinese people, and trick foreigners into supporting it or treating it as a benign entity rather than a brutal revolutionary party. When the CCP is strong, “democracy” becomes a fig leaf for violent dictatorship and the fulfilling of hegemonic ambitions.

History is revealing of how the CCP has wielded “democracy” and whether it is true to its word. When the CCP was fighting with the Kuomintang and the Republic of China, it claimed that Sun Yat-sen’s “Three Principles of the People” had limitations and instead promoted a so-called “new democracy” to win over the masses. “New democracy,” however, was really a repackaged version of the CCP’s totalitarian, anti-China revolutionary ideology. After the CCP ousted the KMT from mainland China and usurped power, it promptly abandoned the pretense of democracy and began implementing its totalitarian socialist vision. Mao Zedong’s Great Leap Forward and Cultural Revolution political campaigns were particularly disastrous for China and the Chinese people, and were not in the least bit democratic.

History also shows that America is particularly prone to being deceived by the CCP’s “democracy” schtick. The Dixie Mission was convinced that Mao and the CCP, and not Chiang Kai-shek and the KMT, were the ones practicing democracy in China; China eventually fell under communist rule after the KMT lost American support. Later, the idea of Communist China might democratize as a result of economic liberalization swayed America into eventually lifting sanctions on China over Deng’s Tiananmen Massacre, restoring “most favored nation” trading status to the PRC, and admitting China to the World Trade Organization. Meanwhile, the CCP continued to strengthen authoritarianism at home, build a techno-totalitarian regime, and viciously persecute religious minorities like Falun Gong practitioners and Uyghur Muslims.

Today, Xi’s “whole-process people’s democracy” appears to be chiefly a response to ideological competition with the United States. Xi and the CCP were previously unable to adequately respond to the Trump administration, which clearly differentiated between the Chinese people and the CCP while powerfully denouncing communism and socialism in unambiguous terms. The Trump administration’s ideological barrage left Beijing on the defensive and on the backfoot for the most part, with CCP officials frequently protesting that America cannot split the Chinese people and the Party but offering little in the way of pushback beyond sloganing.

Xi and the CCP, however, have thus far enjoyed tremendous success in pushing back against the Biden-Harris administration’s ideological challenge. The Biden-Harris administration has been promoting an “autocracy versus democracy” framework, and champions social justice causes and movements. During the first post-Trump Sino-U.S. meeting in Alaska, Politburo member Yang Jiechi cited Black Lives Matter and attacked the U.S. over its human rights record; Secretary of State Antony Blinken did not call out Yang’s false equivalencies and other typical communist tactics, but instead acknowledged America’s “flaws.” Having demonstrated that America cannot speak from a “position of strength,” particularly after the Afghanistan withdrawal debacle, Xi and the CCP are now strengthening the offensive by offering an alternative ideological model (“whole-process people’s democracy”) to meet the one put forth by the Biden-Harris administration (“autocracy versus democracy”).

Countries and governments must not allow themselves to be taken in by the CCP’s “whole-process people’s democracy.” The term itself is steeped in Marxist-Leninist doctrine, and is almost certainly intended to ultimately facilitate the CCP’s effort to advance its global domination agenda, i.e. the so-called “community with a shared future for mankind.” While the CCP’s ambitions are plain for all to see, it is likely betting that its “whole-process people’s democracy” model will be appealing to democratic countries, and particularly those that have taken a sharp authoritarian turn during the COVID-19 pandemic and wish to emulate the “successful” CCP system.

History, however, shows that tyrannies are relatively short-lived. Governments who refuse to be seduced by authoritarianism and the CCP’s deception have greater odds of longevity even though the present seems bleak.

2. Foreign policy and global domination aside, Xi Jinping “whole-process people’s democracy,” like his “common prosperity” agenda, crackdown on tech, finance, and entertainment, and “rectification” of the political and legal affairs apparatus, are geared towards boosting his “quan wei” ahead of the important political conclaves (Sixth Plenum of the 19th Central Committee, 20th Party Congress, etc.) and securing his bid for a norm-breaking third office term in 2022.

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• The second-hand provident fund loan period was stretched from 20 years to 30 years in cases where the combined loan period and building age do not exceed 50 years.
• A number of subsidy schemes were also introduced for those making a one-time cash payment. Full-time doctoral students are eligible for 100,000 yuan in subsidies; full-time master’s students qualify for subsidies of 50,000 yuan; full-time undergraduate (four-year course) students get 30,000 yuan, and college students (including technical schools) get 20,000 yuan in subsidies.

OUR TAKE
1. As we previously analyzed (see here and here), Evergrande’s debt woes are worsening and affecting other Chinese property companies. Real estate developers will find it harder to secure refinancing as the value of their dollar bonds plummet, and the failing of their “borrow new to repay the old” model heightens the risk of a vicious cycle of debt defaults being triggered.

Dollar bonds became a key source of financing for Chinese property developers several years back, and particularly after restrictions were placed on issuance of domestic bonds in 2016. Foreign capital found the high interest rates of those notes attractive, and both mainland property developers and investors overseas soon entered a “honeymoon period” of bond sales and refinancing.

According to mainland media reports, Chinese real estate developers had $230.39 billion of U.S. dollar bonds outstanding as of October 2021, citing statistics from media outlet Guandian. Of the $230.39 billion, $6.51 billion is due in 2021, $54.75 billion is due in 2022, and $54.75 billion is due in 2023. Notes with a maturity period of 3-5 years totaled $80.2 billion; notes with a maturity period of 5-10 years totaled $22.71 billion; and notes with a maturity period exceeding 10 years totaled $15.62 billion.

Chinese real estate dollar bond prices, however, have dropped off sharply with the festering of the Evergrande crisis. Mainland media, citing Chinese property information service provider CRIC, noted that dollar bonds saw their biggest drop in eight years. The IHS Markit iBoxx Asian Chinese real estate dollar bond index fell 12.62 percent between Sept. 30 to Oct. 12, leading the decline in dollar bond varieties.

Yunfeng Securities, another property information service provider, noted that Chinese real estate dollar bonds declined sharply in the second week of October, with Fantasia, Modern Land, Central China Real Estate, Sunshine City Group, and Kaisa Group’s dollar bonds falling 68.99 percent, 63.39 percent, 44.09 percent, 39.52 percent, and 36.52 percent respectively.

The debt crisis shaking China’s real estate sector has also frightened foreign investors and hit refinancing channels for mainland property companies. Data from Tospur Research Institute shows that total foreign financing of 40 representative mainland real estate companies in September 2021 was down by nearly 50 percent from the previous month. Total foreign financing for those companies decreased 44.88 percent month-on-month to 12.736 billion yuan in September, and accounted for 20.85 percent of total financing. Of the 12.736 billion yuan, U.S. dollar financing accounted for 8.314 billion yuan (about $1.282 billion), or 13.61 percent of total financing and a drop of 39.14 percent from the previous month.

Chinese property companies are also seeing their financing costs increase just as they are struggling to issue debt and secure refinancing. Statistics from Beike Research Institute show that seven of 17 offshore bonds issued in September had an interest rate of over 10 percent. The seven notes belong to Zensun Group, Yincheng International, Jingrui Holdings, Zhongliang Holdings, Xinhu Zhongbao, and Kaisa Group; Zhongliang Holdings issued a $200 million note due in 2023 with an interest rate of 12 percent, or one percentage point higher than another note it issued in August.

2. The remarks by PBoC’s Zou Lan reveals the CCP’s fear that Evergrande’s debt crisis will result in financial contagion and a “hard landing” for China’s property sector. To resolve the issue, Beijing is looking to divide Evergrande’s debt woes by locality, provide partial loan support, and help the completion of unfinished projects to prevent the outbreak of social instability.

In short, what the CCP is doing to address the Evergrande issue is very similar to what we previously analyzed: “Beijing clearly does not want China’s property sector to see ‘hard landing’ and trigger systemic financial problems in the regime. Evergrande, however, will not get a bailout, and instead will see its assets split off to state-owned assets as the company looks to cut its debt. Evergrande will also likely look to minimize the number of unfinished projects it has on hand, while its bond and loans will likely be restructured.”

3. China’s housing sector is facing bleak times, with land auctions being terminated at an unprecedented rate and home prices falling. September data from the National Bureau of Statistics showed the price of new houses falling by 2.7 percent year-on-year in August, the first decline since April 2020. Moreover, property prices fell in 16 of China’s 31 provinces and regions in August, the most since March 2015. Local governments have since rolled out measures to limit the extent of real estate discounts.

Meanwhile, soaring commodity and raw material prices, as well as power cuts across China, will bleed into the cost of construction and affect housing prices. Property developers will find it even harder to sell units as they cannot easily transfer rising construction costs to home buyers with housing prices falling across the board. All in all, construction time could drag out, with developers deliberately leaving some projects unfinished.

An appreciation of the U.S. dollar (debt ceiling raise, tapering of Fed bond buying, etc.) over the next couple of months would likely increase the probability of mainland real estate developers defaulting on the dollar bonds.