SinoInsight 1
Party mouthpiece People’s Daily published an article by Central Party History and Documentation Research Institute dean Qu Qingshan titled, “Reform and Opening Up is a Great Awakening of the Party (In-depth Study and Implementation of the Spirit of the 19th Central Committee)” (改革開放是黨的一次偉大覺醒 [深入學習貫徹黨的十九屆六中全會精神]).
The article is part of a post-Sixth Plenum propaganda series that largely promotes Xi Jinping’s “historical resolution,” and was published on page nine of the People’s Daily print edition. The article was also published in the Chinese edition of the U.S.-China Perception Monitor (USCNPM), an online publication operated by China Focus of the Carter Center. According to the USCNPM “About Us” page, the Carter Center is dedicated to preserving President Jimmy Carter’s legacy of normalizing Sino-U.S. relations in 1979 and “advancing U.S.-China relations by building synergy between China and the United States, fostering greater cooperation between them and other nations, and helping to shape the critical U.S.-China bilateral relationship through workshops, websites, and scholarly publications.”
Qu expands on a line in Xi’s resolution about how “reform and opening up” represents a “great awakening” for the CCP. The article explained that after the Cultural Revolution (a “serious setback in the Party’s exploration of China’s own socialist path”), the CCP embarked on “reform and opening up” (the Party’s “great awakening”) to “rely on the Party’s own strength to unite and lead the people to finally correct this serious mistake.”
The article, just like Xi’s “historical resolution,” describes “reform and opening up” as the byproduct of the development and practice of “socialism with Chinese characteristics” under Deng Xiaoping, Jiang Zemin, and Hu Jintao. The Party’s “great awakening” is credited to its “original aspiration” of “working for the happiness of the Chinese people and the rejuvenation of the Chinese nation”; the Party’s highest ideals and ultimate goal of “achieving communism”; the “scientific guidance of Marxism”; and the “creativity” of the masses.
The article concludes by stating that the Party’s “great awakening” led to “reform and opening up” and “great achievements.” Also, “perseverance and development of socialism with Chinese characteristics is the only way to go. This is a decisive move that determines the future and destiny of contemporary China, and a decisive move for achieving the Second Centenary Goal and the great rejuvenation of the Chinese nation.”
Qu Qingshan’s nearly 4,000-character article does not contain any mention of Xi Jinping’s name, political thought, the “Xi core,” or Xi’s “new era.” This led many Chinese observers and overseas media outlets to speculate that Qu’s piece is evidence of intra-Party dissatisfaction with Xi.
Dec. 13
The People’s Daily website published an article by Central Policy Research Office director Jiang Jinquan titled, “Adhere to the Party’s Comprehensive Leadership (In-depth Study and Implementation of the Spirit of the 19th Central Committee)” (堅持黨的全面領導 [深入學習貫徹黨的十九屆六中全會精神]). The article is also part of the post-Sixth Plenum propaganda series promoting Xi’s “historical resolution.”
Through a “review” of history, Jiang’s article makes the argument, “When the Party’s comprehensive leadership is adhered to, the Party and the people’s undertakings will develop healthily; when the Party’s comprehensive leadership is weakened or abandoned, the Party and the people’s undertakings will suffer setbacks or even failures.”
The article cites the “lack of comprehensive leadership in the Party” in explaining the CCP’s “major setbacks” during the “revolutionary period” and the “Agrarian Revolutionary War.” However, after the Party had “established the leading position in Party Central of the correct Marxist line with Mao Zedong as the chief representative” at the Zunyi Conference, “the Party, the Red Army, and the Chinese Revolution were saved at the most crucial moment.” Ultimately, the CCP seized power in China, realized the “unified leadership of the Party,” and established the “basic system of socialism.”
The article glosses over the contradiction between how Mao and the “unified leadership of the Party” saw failures despite having earlier established that the Party and the people’s undertakings will “develop healthily” when the Party’s “comprehensive leadership is adhered to.” Instead, the article simply notes that the Cultural Revolution “caused the most serious setbacks and losses to the Party, the country, and the people since the founding of New China.”
The article notes that the Third Plenum of the 11th Central Committee restored and re-established the “correct ideological, political, and organization lines,” saw “the Party’s leadership” adhered to and strengthened, and launched a “new situation of reform and opening up, and socialist modernization.” However, “under the conditions of reform and opening up, in the process of reflecting on some of the problems that emerged from the Party’s unified leadership, and in exploring how to improve the Party’s leadership, there was deviation in the content and method of the Party’s leadership, the effects of which were not really eliminated until after the 18th Party Congress.” The names of Deng Xiaoping, Jiang Zemin, and Hu Jintao do not appear anywhere in the article.
Jiang’s article then cites portions of Xi’s “historical resolution” in a way that indirectly spotlights problems of the Deng-Jiang-Hu “reform and opening up” era, such the “seven areas of corruption” (七個有之) that seriously affected the Party’s overall leadership. The article goes on to credit “Party Central with Comrade Xi Jinping at the core” for taking measures to uphold and strengthen the “Party’s comprehensive leadership.”
The final third of the article goes on to list the main “achievements” of Xi’s “adherence to the Party’s comprehensive leadership,” especially with regard to “the world-renowned achievements in major struggles against corruption, poverty eradication, combatting the new coronavirus pneumonia, dealing with the trade war, etc.” This “fully demonstrates the institutional advantages of the Party’s comprehensive, centralized, and unified leadership.”
OUR TAKE
1. The omission of Xi’s name, political theory, or “new era” in Qu’s article, as well as it being printed on a less important inside page (page nine) of People’s Daily, is consistent with Xi’s effort to marginalize Deng’s “reform and opening up” policy and distance himself from the political legacy of his predecessors.
As we earlier observed in analyzing the full text of Xi’s “historical resolution,” “reform and opening up” is not included in the 10 aspects of the “historical experience of the Party’s endeavors over the past century.” Part of the reason why this is so is because Xi likely “does not want Deng’s political legacy to outshine his own ‘new leap in the Sinicization of Marxism’ and weaken his hand in factional struggle. For instance, Xi needs his ‘going global’ (對外開放) political ‘achievement’ to be viewed as a ‘historic achievement’ or ‘historic change’ in its own right, and not the result of his adherence to Deng’s ‘reform and opening up’ like Jiang and Hu. The downplaying of ‘reform and opening up’ thus better allows Xi’s theoretical ‘innovation’ and political ‘achievements’ to stand on their own while minimizing the ‘achievements’ and ideological work of Deng and his handpicked successors.”
If Xi does not want his name and political legacy to be too closely associated with that of Deng, Jiang, and Hu, then Party propagandists like Qu Qingshan, who leads a Party academic institution dedicated to producing theoretical works (especially those about Xi Jinping in recent years), would naturally take reference from Xi’s “historical resolution” and leave out him out in a piece that is chiefly about the political legacy (“reform and opening up”) of his recent predecessors. Jiang Jinquan’s article achieves the same effect as Qu’s by doing the exact inverse—omitting Deng, Jiang, and Hu’s name in a piece that is primarily about Xi’s political legacy.
In considering the broader propaganda context, we believe that the decision to omit mention of Xi in Qu’s article and the article’s placement in a less important page of the People’s Daily print edition is more likely the result of guidance by instructions from the top rather than a reflection of on-the-ground dissent towards Xi Jinping.
2. A review of Qu Qingshan’s official career suggests that he likely does not have motivation or incentive to risk penning a stealth attack screed against Xi Jinping at this time.
Qu, 61, spent the bulk of his career in the propaganda apparatus and the theoretical research apparatus. From January 2001 to October 2009, Qu was head of the Qinghai provincial Propaganda Department (sub-provincial/sub-ministerial level), and served under four different Party secretaries: Bai Enpei (Jiang faction; purged), Su Rong (Jiang faction; purged), Zhao Leji (Jiang faction; current Politburo Standing Committee member and CCDI secretary), and Qiang Wei (Jiang faction; current Social and Legal Affairs Committee deputy director of the 13th national CPPCC).
In October 2009, Qu was transferred to the Party History Research Center of the Central Committee to serve as deputy director, and later, director. Qu remained a sub-ministerial level official for eight-and-a-half years before he was finally promoted to vice dean (ministerial level) of the new Central Party History and Documentation Research Institute (formerly the Party History Research Center; was upgraded as part of Party and state institutional reforms) in March 2018. A year later, Qu was promoted to dean.
While Qu Qingshan served in the Jiang faction-influenced propaganda apparatus and worked under several Jiang faction provincial Party bosses during the Jiang faction’s era of dominance, his career trajectory indicates that his allegiance to this faction is inconspicuous at best. Qu would otherwise not have stagnated in the backwater province of Qinghai for nearly nine years and stayed at the sub-ministerial rank for almost two decades; during the Jiang and Hu years, Jiang faction officials tended to rocket up the ranks and were handed important positions. Meanwhile, Qu’s promotion in 2018 seems to be consistent with Xi’s appointment of officials with weak or inconspicuous connections to the Jiang faction to some senior positions due to a shortage of trusted personnel and allies.
Qu owes his promotion to Xi, and has neither political prowess of his own nor allegiances to Xi’s chief factional rivals. Rather, Qu seems to be a regular propaganda worker who does whatever the powers of the day in Beijing wants of him; a review of Qu’s earlier work shows that he sticks to the Party line of the times. As a veteran propagandist, Qu would also unlikely make the basic error of publishing a piece containing colossal “political incorrectness.”
Qu’s background further affirms our analysis that his post-Sixth Plenum piece is not evidence of Xi’s enemies attacking him (rather, the reverse is true, i.e. Xi is preparing to attack his opponents), and that he likely wrote it in strict accordance with guidelines or instructions from the Xi leadership.
3. The publication of Qu Qingshan’s piece in the pro-engagement U.S.-China Perception Monitor, as well as its placement on page nine of People’s Daily, suggest that its target audience is not so much Party members, but the United States and the international community. Xi Jinping is no doubt aware of growing concerns abroad that he could abandon “reform and opening up,” and would be looking to assuage those fears through glowing articles on the topic like Qu’s.
However, how Qu’s article is popularly perceived by the international community and its impact in shaping attitudes towards Xi and the CCP could end up affecting Party elite politics. Incessant speculation about Xi’s poor standing in the Party and growing discontentment towards his rule will embolden Xi’s domestic and external enemies to more fiercely resist and challenge his leadership, leading to an intensification of the CCP factional struggle.
4. When read together and in conjunction with other post-Sixth Plenum pieces, Qu Qingshan and Jiang Jinquan’s articles pave the way for Xi Jinping to move against the Jiang faction.
The Qu and Jiang’s articles suggest that “reform and opening up,” the Party’s “great awakening” (Qu appeared to have borrowed this description from a January 2019 speech by Xi Jinping to commemorate the 40th anniversary of “reform and opening up”) after the setbacks and failures of the Cultural Revolution, was ruined by “problems” and “deviation” in the Party leadership (i.e. Jiang faction rule) before Xi took office in 2012 at the 18th Party Congress. Fortunately for the Party, Xi arrived just in time to “turn the tide,” “deliver the country from distress,” “save the day,” “prevent the building from collapsing,” and “steer the giant ship of China through dangerous shoals and turbulent waves,” in the words of propaganda vice minister Shen Haixiong and CMC vice chairman Zhang Youxia in their post-Sixth Plenum pieces.
Such framing potentially sets the stage for Party propagandists to later credit Xi Jinping with sparking another “great awakening” in dealing with the “problems” and “deviation” of Party leadership from the “reform and opening up” era (i.e. criticizing Jiang Zemin and purging Jiang faction members). Once the “problems” and “deviation” are “rectified,” Xi will be justified in seeking a third term to serve as the “great helmsman” in leading the regime towards its “Second Centenary Goal” in the “new era.”
SinoInsight 2
Officials and academics
Dec. 13
He Keng (pronounced “hur-keng”), a former vice chairman of the Finance and Economics Committee of the National People’s Congress, shared his thoughts on the Central Economic Work Conference (Dec. 8 to Dec. 10) and China’s economic outlook in a written interview with the Chinese-language edition of Reuters.
Highlights of the interview include:
Economic risk
He Keng said that the Central Economic Work Conference’s mention of “precise defusing of bombs,” the implementation of “the responsibility of all parties,” and the compaction of “corporate responsibility” was particularly “eye-catching.” Those mentions “implicitly point to the inevitability of exploding ‘mines’ in 2022. The responsibility [of local governments, financial institutions, entrepreneurs, etc. in financial matters] must be made clear.”
‘Three pressures’ (demand contraction, supply shock, weakening expectations)
He Keng believes that the “right medicine” must be used to “treat” the “three pressures” after “deep analysis” is done to understand what gave rise to them.
He said that “demand contraction” is the outcome of underemployment and slow income growth, and “great attention” must be given to the problem in order to successfully return China to a healthy level of development. “Weakening expectations” is the manifestation of the Chinese people’s lack of confidence in the future, while confidence is directly connected to “demand contraction” and “supply shock.” Therefore, He Keng believes that stabilizing employment and finance are the most important aspects of the “six stables” that should be focused on to restore the people’s confidence.
Adequately advancing infrastructure investment
He Keng said, “Last year, I said something ill-informed: I disagree with [the construction of] ‘new infrastructure.’ I also recommended not spending too much on the ‘commercialization of 5G’ for the time being. If we rush to roll out 5G construction across the nation, first, the investment is too large; second, it is of not much use for the time being and we’re still quite far from the industrial internet era.”
He added, “This year, I’m not amenable to current affairs. I disapprove of the disorderly expansion of semiconductor projects.” Rather, “[we should] promote the flow of resources downwards to better support basic level government in implementing policies to help enterprises alleviate hardships and guarantee the livelihood and operations of people at the grassroots.” [Note: By being “not amenable to current affairs,” He Keng is saying that he is stating his frank opinion and not engaging in flattery to please the CCP]
China’s property sector
He Keng believes that there are two reasons for the emphasis on “resolutely curbing new local government implicit debt” at the Central Economic Work Conference. First, there is a surplus of low-grade commercial housing, and destocking is a big problem when the vacancy rate of commercial housing is estimated to be no less than 20 percent. Second, real estate industry debt is large and the debt is “intertwined” with banks and local governments. This greatly increases the difficulting of “defusing” the bomb.
‘Traffic lights’ on capital
He Keng noted that “capital is the currency of profit-chasing.” If not regulated, such behavior will have serious consequences for the economy and society, and the “owner of capital will become mega-rich or destitute overnight.” He added that private entrepreneurs should not be confused with capitalists [Note: He Keng is drawing a distinction here because “capitalists” has negative connotations in Communist China, but the Party is positive towards “private entrepreneurs.” Here, He is urging the CCP and leftists in the regime against cracking down on private ownership and private enterprises like in the past.]
He Keng said that the “traffic lights” that will set up to regulate capital (as mentioned in the Central Economic Work Conference) must be tethered to the law, and different “traffic lights” should not be set up for “different forms of capital” [Note: “Different forms of capital” refers to SOEs, private enterprises, foreign capital, etc.].
He said, “Reform is the only way to effectively control the negative role of capital, including reforming financial institutions (including banks) into nonprofit intermediaries. The “money generating money” mechanism should be abolished, and the basic idea that capital can only proliferate when combined with human production activities should be firmly established. Otherwise, it would be difficult in practice to distinguish between the ‘disorderly expansion’ and ‘orderly expansion’ of capital.”
2. Yu Xuejun, a former deputy ministerial level official at the China Banking and Insurance Regulatory Commission, said at a financial summit that China is facing various risks and pressures, including “the biggest Gray Rhino” of real estate market adjustment and heavy local government debt burdens. He added that the risks and pressures will have an obvious impact on the financial sector.
Yu added that China’s economic development will enter a “new period of pain” as the regime’s growth model transforms and upgrades, with accelerated changes in industrial structure, regional economic development, technological progress, and other areas. Under the circumstances, the transformation and development of the banking industry will be more urgent and pressures will continue to pile up, Yu said. This requires ideological preparation for long-term responses, an active seeking of initiative, and the pursuit of stronger and better development while preventing and controlling various risks effectively.
Yu Xuejun also said that the difficulty of risk prevention and control in the banking industry seems to be increasing, with some small- and medium-sized banking and financial institutions facing “real risk exposure” and other problems.
Property sector data and reports
Dec. 15
1. The PRC National Bureau of Statistics (NBS) released China’s real estate data for November.
1.1. In November, the price index of newly-built commodity residential units in 70 medium- and large-sized cities fell 0.3 percent month-on-month (down 0.2 percent from October), the weakest since February 2015 (down 0.4 percent YoY). The price index’s year-on-year increase of 3 percent is the lowest since January 2016 and reflects six consecutive months of shrinking.
Of the 70 medium- and large-sized cities, the new residential price index rose in nine cities (compared to 13 in October); stayed flat in two cities (compared to five in October); and fell in 59 cities (compared to 52 in October). Meanwhile, the price index for second-hand homes rose in three cities (compared to four in October); remained flat in four cities (compared to two in October); and fell in 63 cities (compared to 64 in October).
Of the 70 cities, four are first-tier, 31 are second-tier, and 35 are third-tier.
1.2. The total sale area of commercial properties from January to November was 15.8131 billion square meters, and total sales amounted to 16.1667 trillion yuan. The growth rate of sale area and sales dropped from 10.94 percent and 133.4 percent respectively in the January-February period to 4.8 percent and 8.5 percent in the January-November period.
1.3. Real estate developers had 18.3362 trillion yuan of investable capital in the January-November period, the growth rate of which dropped from 51.2 percent in the January-February period to 7.2 percent.
2. According to an S&P report, China’s banking sector’s real estate non-performing loan (NPL) ratio stood at 2 percent at the end of 2020, 2.5 percent in the middle of 2021, and could rise to 5.5 percent by the end of 2021. The report estimates that about a third of China’s property developers are in financial trouble, which would raise the overall NPL ratio by about 20 basis points this year, affecting bank profitability. S&P predicts zero growth in property development loans in 2022, with modest growth in 2023 and 2024.
Real estate policies and measures
Dec. 13
1. Yicai Global reported that local governments of at least 10 cities or regions (mostly third- or four-tier cities) launched policies to encourage home buying in the past month. These places include Hohhot, Jingmen, Hengyang, Kaifeng, Nanming, Baoding, Hai’an in Nantong City, Bishan and Wanzhou in Chongqing City, Longli in the Qiannan Buyei and Miao Autonomous Prefecture, and Jinzhai in Lu’an City.
Some of the home-buying policies include direct local government subsidies, preferential treatment for farmers, “talents,” and those with two or three children, deed tax exemptions for commercial properties, and subsidies for underground parking. The Baoding local government in Hebei Province even took the lead in relaxing purchase and price restrictions on specific types of housing.
According to Shanghai E-House Real Estate Research Institute, the year-on-year monitored inventory data of 100 cities nationwide has been growing positively for 36 consecutive months, a five-year high. Meanwhile, the pressure to destock property in third- and fourth-tier cities is at its greatest and will be difficult to resolve in the short term.
2. The Bureau of Natural Resources and Planning of Haikou City in Hainan Province announced on its website the invalidation of real estate rights certificates belonging to companies under China Evergrande. Eight state-owned construction land use rights were recovered without compensation because those companies had not started development and construction on the land for two years beyond the agreed upon development commencement date.
According to mainland media reports, Evergrande had been acquiring property projects from New World Property in Hainan since 2015.
Property sector debt
Dec. 14
Shanghai Shimao Real Estate, a subsidiary of Shimao Group, announced that it was returning all the properties it previously sold in a district of Shanghai’s Pudong Lujiazui, including paying back the purchase price and an additional 10 percent in compensation. In response to inquiries, Shimao said, “The reason for halting sales is complicated and has nothing to do with trust mortgages, but rather, a comprehensive decision taken after self-examination.”
According to mainland media, Shanghai Shimao put up for sale 110 units (worth about 450 million yuan) of old houses in a prime district in Shanghai at below-market prices around mid-October, a move that attracted many buyers. Shanghai Shimao also required buyers to pay for those houses in full without the option of taking a loan. Subsequently, most of the buyers discovered that Shanghai Shimao had already mortgaged the houses to a trust firm in Lujiazui to secure financing, which meant that they could not complete their purchase. Shimao Group was later accused of defrauding homebuyers to resolve its liquidity problems.
A day before Shimao’s announcement, the company’s bonds plunged across the board (one note fell by as much as 54 percent) due to growing speculation about a “financial crisis” at the company.
Shimao Group is the 13th-largest real estate company in China and one of the largest bond issuers. As of June 30, 2021, Shimao’s various borrowings totaled about 164.51 billion yuan.
Dec. 15
1. China Fortune Land Development said that it “lost contact” with China Create Capital, a British Virgin Islands-registered money manager to which it handed over $313 million in 2018 in the hopes of receiving annual returns of 7 to 10 percent through 2022. Fortune Land said it had reported the matter to the Langfang public security authorities.
Zhang Wei, the actual controller of China Create Capital, was arrested in 2019 and sentenced to life imprisonment on Nov. 26, 2021 on 11 counts, including organizing and leading a triad organization and illegally absorbing public deposits.
2. R&F Properties said in an English announcement that it is conducting a tender offer and consent solicitation to “improve the Group’s overall financial condition, extend its debt maturity profile, strengthen its balance sheet and improve cash flow management.” The announcement added that it may not be able to redeem notes upon maturity on Jan. 13, 2022 if the tender offer and consent solicitation are not successfully consummated.
R&F Properties’ Jan. 13, 2022, U.S. dollar-denominated note has a principal amount of $725 million. The company has approximately $19 billion worth of bonds, split 50/50 between domestic and offshore debt, maturing in 2022, according to mainland media reports.
On the same day, S&P downgraded Guangzhou R&F Properties Co. Ltd. and its R&F Properties (HK) Co. Ltd. subsidiary to “CC” from “B-” with a negative outlook.
Central banks
Dec. 15
The U.S. Federal Reserve announced a decision to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities.
Dec. 16
1. The Bank of England voted eight to one to raise rates from the historic low of 0.1 percent to 0.25 percent.
2. The European Central Bank announced that it would keep its interest rate unchanged, but will cut bond-buying under its Pandemic Emergency Purchase Programme in the next quarter.
OUR TAKE
2. China’s debt crisis is likely to expand further next year. A trend of concentrated defaults could emerge, with escalated risks of a “hard landing” for the real estate sector.
The data paints a bleak picture. According to figures released by China Index Academy in mid-November, many Chinese property companies will see their offshore debt mature in 2022, with as much as 356.02 billion yuan worth of notes coming due. By quarter, the bulk of the notes will mature in the first (98.33 billion yuan) and second (98.39 billion) quarters of the year before dropping off somewhat in the third (85.26 billion yuan) and fourth (74.04 billion yuan) quarters. Also in November, real estate prices fell in 59 of 70 medium- and large-sized cities (84.3 percent); shrinking revenues will make it harder for real estate companies to make repayments and sustain operations in general.
3. The financial contagion caused by a potential “hard landing” for China’s real estate sector will trigger systemic financial risks in China, affect government fiscal revenue and operations, and damage the CCP’s credibility.
First, China’s declining birth rate and rapidly aging population is leading to shrinking demand across the board and particularly in the housing market. Already, China’s housing market is seeing serious surplus issues, with supply increasing at a high rate each year.
Second, Beijing’s continued efforts at regulating the property sector (contributing 17 percent of China’s GDP in 2020) to curb risks is triggering a debt crisis not just for Evergrande, but many other developers as well. China’s real estate sector debt crisis will certainly drag down the economy (51.5 percent of total social fixed asset investment in 2020 is fully driven by the property sector; the sector has 15 million employees in 2021; and China’s housing market value as a percentage of equity and debt housing market value was 66.6 percent in 2020) and directly affect local government revenue streams (combined land transfer revenue and special real estate taxes accounted for 37.6 percent of local government revenue in 2020). Local governments that have long been dependent on land sales to maintain their finances and operations will be especially affected by the downturn in the property sector; already, some local governments are slashing civil servant pay by as much as 20 to 30 percent.
Third, a deteriorating economy and falling real estate prices will inevitably result in a wave of mortgage failures, which will in turn ramp up non-performing bank loans (already 27.4 percent of the total bank loan balance as of June 2021). The devastating knock-on effect of this is a sharp drop in land prices, which perpetuates the vicious cycle.
According to data published by CRIC earlier this year, the total value of land reserves held by the top 100 real estate companies in China reached 45.9 trillion yuan at the end of 2020. Property firms usually mortgage the land to financial institutions to secure funding. Should the real estate bubble burst, capital chains of property companies break, or concentrated defaults occur, the land will be transferred to those financial institutions. The resulting liquidity problems and capital losses for financial institutions could be catastrophic, and particularly for the over 4,000 small- and medium-sized banks in China.
Finally, a property sector “hard landing” will depress land prices and trigger a vicious cycle in many localities. Local governments will see their debt ratio go up as land prices go down since land forms the bulk of the collateral used in securing funding from local government financing vehicles (LGFV). With higher debt ratios, local governments will be restricted from issuing bonds to refinance old debt, which leads to a debt crisis, reduced revenue, and increased operational difficulties. This will have a knock-on effect on local businesses and financial institutions, raising bankruptcy risks and ultimately affecting the revenue streams of local governments.
4. Xi Jinping will be severely tested next year should the Chinese economy enter a recession or the real estate bubble bursts. Xi’s factional rivals will latch on to China’s economic woes to question his eligibility to serve as a “great helmsman” and lead the CCP towards its “Second Centenary Goal,” and make serious efforts to block his taking of a norm-breaking third term at the 20th Party Congress.
