SinoInsight 1
On May 15, state mouthpiece Xinhua reported that the CCP General Office had issued a new set of regulations governing the behavior of veteran and retired Party cadres. The General Office instructed all regions and departments to earnest implement the regulations, titled “Opinion on Strengthening Party Building Work for Veteran and Retired Party Cadres in the New Era” (關於加強新時代離退休幹部黨的建設工作的意見, henceforth referred to as the Opinion).
State media published an overview of the Opinion and a Q&A with a “person-in-charge” at the Central Organization Department on the drafting, formulation, and implementation of the regulations. Key takeaways include:
- The Opinion seeks to implement the strategic policy of comprehensively and strictly governing the Party, and better unite the vast number of veteran and retired cadres around Party Central with Comrade Xi Jinping at the core.
- Veteran and retired Party cadres should be organized and guided to deeply study the Party’s “innovative theory in the new era,” consciously practice Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, deeply understand the decisive significance of the “Two Establishes,” strengthen the “Four Consciousnesses,” be firm in the “Four Self-confidences,” achieve the “Two Upholds,” and consciously maintain a high degree of ideological, political and action consistency with Party Central with Comrade Xi Jinping at the core. It should also be ensured that retired cadres and Party members continue to listen to the Party and follow the Party.
- It is necessary to put forward requirements and regulations to veteran and retired Party cadres and the Party organizations that they belong to. The Opinion also emphasized that veteran and retired Party cadres who have held leadership positions should play an exemplary role.
- The organizational leadership of Party building work for veteran and retired Party cadres should be strengthened, and Party Committees (or Party groups) at all levels must implement their work responsibilities.
- Veteran and retired Party cadres who travel abroad (leave the mainland territory) must strictly comply with the relevant regulations.
- Veteran and retired Party cadres, and especially those who have held leadership positions, must strictly abide by the relevant discipline and rules, not have improper discussions of Party Central’s major policies, not spread political negative remarks, not participate in illegal social organization activities, and not use their former authority or position influence to seek benefits for themselves and others. They must also resolutely oppose and resist various erroneous ideological trends, as well as resolutely oppose hedonism and extravagance.
- The bulk of veteran and retired Party cadres must be organized to give full play to their political, experience, and prestige advantages. Their work must be centered on adhering to the Party’s overall leadership, promoting the great spirit of Party building, and telling well the story of the Party’s major achievements and historical experiences in its centennial struggle. Concurrently, veteran and retired Party cadres should be prevented from interfering with the work of their former work units or other grassroots units.
Party lexicon explainer: “Veteran cadres” (離休老幹部) are officials who participated in so-called “revolutionary work” before the PRC was established in 1949, joined the regime government post-1949, and retired at 60 or 65 depending on the seniority of their position. “Veteran cadres” are mostly over 90 today, and include Party elders (中共元老), or retired national-level leaders.
“Retired cadres” (退休幹部) generally refers to retired officials who joined the PRC government after the CCP established its regime in 1949.
OUR TAKE
With the Opinion, Xi Jinping is looking to stamp out the influence of gerontocracy on CCP politics in the lead up to the 20th Party Congress, where Xi is making a norm-breaking bid for a third term in office and is looking to secure favorable personnel reshuffles. Xi does not want veteran and retired Party cadres criticizing his leadership’s policies or carrying out political mobilization against Beijing. The only situation in which retired cadres are allowed to showcase their “political, experience, and prestige advantages” is in telling the story of Xi’s “new era” well.
That Beijing sees the need to issue the Opinion and strictly regulate the behavior of veteran and retired Party cadres indicates that there is a lot of dissatisfaction and quasi-mutinous chatter about Xi and his leadership in the officialdom. This was hinted at in political rumors circulating after the COVID-19 outbreak in 2020 that Party elders were demanding that Xi step down over his leadership’s subpar policies (“Deng Pufang’s open letter,” “Zhu Rongji’s written brief,” etc.). Also, information emerged in late 2021 that retired People’s Liberation Army Air Force general Liu Yazhou was reportedly placed under “internal control” for criticizing Xi and questioning his leadership ability during Party princeling gatherings. Anti-Xi talk among veteran and retired Party cadres (and almost certainly among active officials) would have only increased after Liu’s arrest, the disasters wrought by Xi’s “zero-COVID” policy, China’s sharp economic deterioration in recent months, and mounting global pressure and scrutiny toward the PRC over its noncommittal stance on the Russia-Ukraine war.
The Xi leadership is likely aware of the growing rumblings of discontent. The Opinion would allow Xi to strengthen monitoring and management of veteran and retired Party cadres ahead of the important Beidaihe meeting in the fall, the Seventh Plenum of the 19th Central Committee, and the 20th Party Congress. Beijing is likely looking to guard against interference in elite politics from the CCP gerontocracy, stop them from spreading negative political rumors about Xi and his leadership, deny retired cadres opportunities to collude with the “anti-Xi coalition” and form political gangs, and dissuade retired cadres from participating in illegal activities.
Prominent retired cadres have caused trouble for Xi Jinping and interfered with his political agenda on numerous occasions during his decade in office. The Jiang faction, with Jiang Zemin as its figurehead and Zeng Qinghong as its number two, staged several “soft coups” during Xi’s first term, including the “financial coup” and Tianjin explosion in 2015. Xi’s immediate predecessor Hu Jintao helped to weaken the influence of the CCP gerontocracy on the incumbent leadership by handing over all his offices to Xi at the 18th Party Congress; in contrast, Jiang kept the Central Military Commission leadership for two years after Hu had succeeded him as Party boss. Hu and former premier Wen Jiabao also made public appearances when Xi traveled abroad to stabilize the situation at home, quietly support Xi, and deter the Jiang faction from making mischief as they did on a number of Xi’s overseas trips during his first term.
Retired cadres almost certainly blocked Xi from getting an important personnel appointment at the 19th Party Congress. Despite arresting Sun Zhengcai, Fang Fenghui, and Zhang Yang to stamp his authority around the Beidaihe meeting period, Xi was unable to keep Wang Qishan, who was highly effective as anti-corruption chief, on the Politburo Standing Committee. Xi had to settle for Wang becoming PRC vice president (albeit with lifetime tenure) and holding no important portfolios. The passage of the Opinion regulating the behavior of retired cadres and Party members is likely part of Xi’s effort to ensure that he fully gets what he wants at the 20th Party Congress and not be forced to make political compromises on key agenda items.
SinoInsight 2
Since last week, the PRC National Bureau of Statistics has been releasing China’s economic data for April and the first four months of the year. Several indicators showed sharp declines and significant weaknesses, and the pace of economic deterioration surprised some Chinese economists.
Key economic indicators released in April include:
1) China’s total added value of industrial enterprises above designated size decreased by 2.9 percent year-on-year in April and 5 percent year-on-year in March. Of the total, manufacturing fell 4.6 percent and automobile manufacturing declined 31.8 percent.
2) China’s investment in fixed assets (excluding rural households) from January to April increased by 6.8 percent year-on-year to 15.3544 trillion yuan, but decreased 0.82 percent month-on-month in April. Investment in fixed assets grew by 1.8 percent year-on-year in April and 6.6 percent year-on-year in March.
Analysis: According to earlier NBS data, the national investment in fixed assets was 5.4109 trillion yuan in March and 4.8672 trillion yuan in April. This represents a 10.1 percent decrease month-on-month, and not the 0.82 percent decrease per the latest figures. The CCP appears to have significantly “massaged” the national fixed assets investment data to make it more acceptable.
3) Investment in infrastructure (excluding electricity, heat, gas, water production, and supply industries) grew by 6.5 percent year-on-year from January to April, and increased by 8.5 percent year-on-year from January to March.
Investment in infrastructure in April grew 3.0 percent year-on-year and 8.8 percent year-on-year in March.
4) Investment in real estate development decreased 2.7 percent year-on-year to 3.9154 trillion from January to April. Of the total, residential investment decreased 2.1 percent year-on-year to 2.9527 trillion yuan. In April, investment in real estate development decreased 10.1 percent year-on-year, and decreased 2.4 percent in March.
Total sales area of commercial buildings from January to April was 397.68 million square meters, a year-on-year decrease of 20.9 percent. Of the total, residential buildings sales area fell by 25.4 percent. In April, total sales area of commercial buildings declined 39.0 percent year on year, and down 17.7 percent in March.
Total sales of commercial buildings from January to April fell 29.5 percent year-on-year to 3.7789 trillion yuan. Residential buildings sales declined by 32.2 percent. Total value of real estate sales in April dropped 46.6 percent year-on-year, and fell 26.2 percent in March.
5) Changes in the sales prices of commercial residential units in 70 medium- and large-sized cities in April reflected price drops in new commercial residential units and second-hand commercial residential units in 47 and 50 cities respectively, or 9 more and 5 more respectively from a month ago. Price increases in new home prices in third- and fourth-tier cities fell the most, from 10 cities in March to just four in April.
Table 1 (Source: National Bureau of Statistics)
Yan Yuejin, research director of the E-House Research Institute Think-tank Center, estimated that the new home price index for 70 medium- and large-sized cities in April fell by 0.3 percent month-on-month and 0.1 percent year-on-year. This represents the first year-on-year decline for the index since December 2015. Meanwhile, the second-hand home price index in April fell by 0.3 percent month-on-month (or eight consecutive months of declines) and 1.6 percent year-on-year (or an expansion of declines). Yan said that his estimation indicates that downward pressures on housing prices are increasing.
6) Total retail sales of consumer goods from January to April decreased 0.2 percent year-on-year to 13.8142 trillion yuan. Total retail sales of consumer goods fell 11.1 percent year-on-year in April to 2.9483 trillion yuan, and declined 3.5 percent year-on-year in March.
In April, sales of automobiles declined 31.6 percent year-on-year and catering income fell 22.7 percent.
Table 2 (Source: National Bureau of Statistics)
7) China’s balance of broad money (M2) was 249.97 trillion yuan at the end of April, a year-on-year increase of 10.5 percent. In comparison, the M2 increased 8.1 percent over the same period last year and 9.7 percent in March.
In April, RMB loans increased by 645.4 billion yuan, or 823.1 billion yuan less than a year ago. In comparison, RMB loans grew 3.13 trillion yuan in March, a 395.1 billion yuan increase year-on-year. Loans to enterprises (institutions) were up 578.4 billion yuan in April, a decrease of 176.8 billion yuan year-on-year. Household loans decreased 217 billion yuan, down 745.3 billion yuan from a year ago. Housing loans fell 60.5 billion yuan in April, a decrease of 402.2 billion yuan year-on-year.
RMB deposits increased by 90.9 billion yuan in April, or 816.1 billion yuan more year-on-year. In March, RMB deposits grew by 4.49 trillion yuan, or up 857.7 billion yuan from the previous year. Non-financial corporate deposits decreased 121 billion yuan in April, down 234.6 billion yuan year-on-year, while household deposits fell 703.2 billion yuan, a year-on-year decrease of 867.7 billion yuan.
8) The growth in social financing in April was 910.2 billion yuan, or 946.8 billion yuan less from a year ago. Growth in social financing in March was 4.65 trillion yuan, or 1.28 trillion yuan more year-on-year; 1.19 trillion yuan in February, or 531.5 billion yuan less year-on-year, and 6.17 trillion yuan in January, or 984.2 billion yuan more compared with the same period last year.
Economic policy
May 15
The People’s Bank of China and the China Banking and Insurance Regulatory Commission announced an easing of mortgage loan interest rates for some home buyers. In a notice, the authorities note that commercial banks can reduce the lower limit of interest rates on home loans by 20 basis points, based on the corresponding tenor of benchmark Loan Prime Rates (LPR), for first-time home buyers. This meant that first-time home buyers are entitled to an LPR of not lower than 4.4 percent based on the 5-year LPR released on April 20.
May 16
The Ministry of Industry and Information Technology issued a notice on a “joint action” by 11 ministries to promote integration and innovation in medium- and large-sized enterprises (工業和信息化部等十一部門關於開展“攜手行動” 促進大中小企業融通創新 [2022-2025年] 的通知). To accomplish the task, the notice proposed focusing on “seven chains” (七條鏈), namely, innovation chains, industrial chains, supply chains, data chains, capital chains, service chains, and talent chains.
May 17
PRC vice premier Liu He spoke and met with Chinese tech executives during a meeting convened by the Chinese People’s Political Consultative Conference. Baidu founder Robin Li, Qihoo 360 Technology founder Zhou Hongyi, and NetEase Inc. chief William Ding, were among the executives who attended the meeting, according to state media video.
Liu said that Beijing is looking to “properly manage” the relationship between the government and the markets, according to state media. Beijing will also support tech firms seeking listings at home and abroad, as well as back the “healthy development” of the platform economy, he added. Official media reports on Liu’s remarks were short on details.
Tech stocks rallied ahead of the meeting, with the Hang Seng Index increasing by 5.7 percent on May 17 and the NASDAQ Golden Dragon Index up by 5.2 percent. Liu He’s underwhelming remarks, however, saw tech shares drop over the next two days. The Hang Seng Tech Index was down 0.29 percent (down more than 2 percent during intra-day trading), Alibaba down 0.17 percent, and Tencent down 1.19 percent on May 18. On May 19, the Hang Seng Tech Index closed down 3.98 percent (down more than 5 percent during intra-day trading), Alibaba down 7.39 percent, and Tencent down 6.51 percent.
Foreign capital and exchange
May 14
The International Monetary Fund announced that it was increasing the weight of the RMB from 10.92 percent to 12.28 percent in its basket of currencies that make up the valuation of its Special Drawing Rights (SDR). The composition of the currencies remained unchanged.
The following day, mainland media reported BOC International Securities global chief economist Guan Tao as saying that the IMF increasing the weight of the RMB in the SDR reflects China’s increased export market share, the proportion of RMB foreign exchange reserves, and the proportion of foreign exchange transactions in recent years.
May 16
PRC holdings of U.S. Treasury bonds at the end of March fell $15.2 billion from February to $1.039 trillion, according to U.S. Treasury Department data. The fourth consecutive month of decreases took total PRC holdings of U.S. Treasurys to the lowest level since June 2010. China remains the second-largest non-U.S. holder of Treasury bonds.
May 17
1. State mouthpiece Xinhua published an interview with State Administration of Foreign Exchange deputy director and spokeswoman Wang Chunying.
Wang believes that the tightening of monetary policies in major developed economies will have a “spillover effect” on international capital flows. However, she also believes that China’s forex market has become “more mature and resilient,” allowing it to better adapt to external changes.
Wang told Xinhua that the RMB is “relatively solid” compared to major global currencies despite the recent depreciation of the yuan against the dollar. She gave the example of the depreciation of the euro and the pound by 8 percent and 10 percent respectively when the dollar index rose sharply by 9 percent earlier in the year, while the RMB depreciated by about 6 percent. This shows that “the RMB is more stable than the currencies of major developed economies,” Wang said.
2. National Development and Reform Commission spokesman Meng Wei told a press conference that the Commission is “studying, revising, and expanding” a catalog of industries where foreign investment is welcome (鼓勵外商投資產業目錄). Meng said that the catalog is meant to encourage foreign investment in China, and particularly investment in key areas like manufacturing and producer services, as well as key regions in central, western, and northeastern China.
3. Citibank (China) announced on its official website that its customers would not be able to transfer money to or accept remittances from Citibank accounts in the United States through the Citi global express service from June 17, 2022.
4. Bloomberg reported that the China Foreign Exchange Trade System appeared to have stopped providing data on transactions after May 11. People familiar with the matter told Bloomberg that the data on May 11 showed “sizable net foreign outflows,” with “some selling also seen for most days in April.”
Bloomberg reported that foreign investors sold 42 billion yuan (about $6.2 billion) of Chinese bonds in April, citing data from Chinabond. April was the third consecutive month of selling by overseas funds.
May 18
The Financial Times reported that foreign investors dumped a record $35 billion worth of RMB-denominated bonds from January to April 2022. Those investors also sold more than 108 billion yuan ($16 billion) worth of Chinese bonds in April, which took net outflows from the RMB-denominated bond market to a record 235 billion yuan for the year.
Gov’t finances and debt
May 16
Yicai Global found that the revenue growth of 15 provinces and cities in China with general public budget revenues exceeding 10 billion yuan slowed down in the first four months of 2022. The provinces and cities are Jilin (revenue growth down 74.4 percent), Wenzhou (down 74.6 percent), Gansu (down 57.4 percent), Suzhou (down 49.6 percent), Shenzhen (down 44.2 percent), Nanning (down 37.4 percent), Wuhu (down 30.7 percent), Zhongshan (down 22.1 percent), Huizhou (down 19.9 percent), Taiyuan (down 16.5 percent), Hefei (down 7.6 percent), Changsha (down 1.4 percent), Guiyang (down 0.75 percent), Zunyi (up 7.8 percent), and Ordos (up 84.4 percent).
Twenty-three other provinces and cities with relatively smaller revenue also experienced significant declines in fiscal revenue in April, with tax revenue falling more sharply, according to Yicai.
Analysis: Ordos City in Inner Mongolia saw a substantial increase in fiscal revenue because the CCP had relaxed coal mining restrictions in late 2021 to deal with an energy crunch.
May 17
The Ministry of Finance released fiscal data for April:
- The national general public budget revenue from January to April was 74.293 trillion yuan, an increase of 5 percent year-on-year after deducting tax rebates, and a decrease of 4.8 percent when calculated per a “normal caliber.” The national tax revenue accounted for 62.319 trillion yuan of the total national general public budget revenue, a 3.7 percent increase year-on-year after deducting tax rebates, and a decrease of 7.6 percent when calculated per a “normal caliber.” The non-tax revenue was 11.974 trillion yuan, an increase of 13.4 percent over the same period from the previous year.
- The national general public budget expenditure from January to April was 80.933 trillion yuan, an increase of 5.9 percent year-on-year.
- The national government fund budgeted revenue from January to April was 17.565 trillion yuan, down 27.6 percent from the same period last year. Meanwhile, the national government fund budget expenditure over the same period was 31.488 trillion yuan, up 35.2 percent year-on-year.
May 18
1. The Ministry of Finance released local government debt data for April. The data showed that 284.2 billion yuan worth of local government bonds were issued nationwide in April, including 120.8 billion yuan of new bonds and 163.4 billion yuan of refinancing bonds. Due repayment of bond principal was 136.7 billion yuan, and due repayment of local government bond interest was 90.2 billion yuan.
Analysis: Refinancing bonds accounted for 57.5 percent of local government bonds issued in April, compared with just 20.4 percent in March. Meanwhile, principal and interest repayments due in April were 226.9 billion yuan, or 79.8 percent of total bond issuance for the month; this is compared with 41.4 percent in March.
2. The Ministry of Finance published on its website a circular on typical cases of local government implicit debt accountability (關於地方政府隱性債務問責典型案例的通報). The circular highlighted eight cases of implicit debt and bad debt cover-ups in prefecture-level cities.
The circular urged all localities and work units to take the prevention and resolution of implicit debt risks as “an important political discipline and political regulations,” adhere to bottom-line thinking, implement work responsibilities, have high levels of government hold lower levels of government accountable (層層傳導壓力), strengthen daily supervision, resolutely curb the increase of implicit debt, and properly dispose of and resolve hidden debt stock.
OUR TAKE
1. Beijing’s “zero-COVID” policy appears to be the driving reason behind China’s poor economic performance in April.
Businesses and residents have become reluctant to make investments and spend money given the rolling lockdowns and COVID restrictions. The growth in social financing in April was less than 1 trillion yuan, or far lower than the market expectation of 1.53 trillion yuan. Also, while the M2 and RMB deposits saw increases, deposits and loans among enterprises and residents decreased over the same period, particularly household loans. This suggests that the PBoC’s monetary easing policies (comprehensive and targeted RRR cuts, advance payment of profits, etc.) had a limited impact in stimulating the real economy. Businesses and residents dare not take out loans because the “zero-COVID” policy has resulted in reduced income and revenue, an uptick in bankruptcy and unemployment, and people taking the initiative to reduce their leverage and risks amid uncertain prospects during the pandemic and Beijing’s draconian epidemic control measures.
The impact of reduced consumption overall is clear from the official economic figures. The auto industry, a key pillar of China’s manufacturing sector, saw its total added value (down 31.8 percent) and retail sales (down 35.5 percent) decline by around a third in April. Total retail sales of consumer goods declined by 11.1 percent in April on the back of a 3.5 percent decrease in March, with auto sales and catering falling sharply. Real estate sales in April fell by nearly 50 percent, while prices of new and second-hand homes in 70 cities continued to drop.
The CCP has also been unable to drive infrastructure construction to stimulate the economy under “zero-COVID” conditions. The growth rate of infrastructure investment in April was 5.8 percent lower than that of March, while the growth rate of national investment in fixed assets was down by 4.8 percent from the previous month.
“Zero-COVID” aside, China’s poor economic performance and increased outflows in April are due to external factors like the Russia-Ukraine war and the U.S. Federal Reserve’s moves to curb inflation. To deal with the more obvious effects of “spillover risks,” the CCP has resorted to covering up data on transactions that show “sizable foreign outflows,” while Citibank (China) is suspending its remittance services. China will likely see greater outflows going forward as foreign companies increasingly account for China’s political risks over the Russia-Ukraine war and the “zero-COVID” policy, as well as the Fed further raising interest rates and shrinking its balance sheet. This would in turn exacerbate the vicious cycle of China’s economic deterioration to the point where the CCP authorities cannot rely on fraudulent data to cover up a recession.
2. After the release of China’s economic data for April, many Chinese economists began floating the idea of the government offering cash subsidies to the people to stimulate consumption because infrastructure investment alone is insufficient to boost domestic demand.
Teng Tai, a prominent Chinese economist and the dean of WANB Institute, observed in a May 17 article that “many experts, scholars, and decision-making departments” have been looking again to large-scale investment to make up the “consumption gap.” However, the actualization of the investment policy, which fails to get to the root of the problem (頭痛醫腳), will inevitably distort China’s economic structure and bring a series of new problems like huge project losses, out-of-control government debt, and a consumption squeeze. Teng wrote that all production is ultimately meant to satisfy consumption, and only when goods reach consumers will production be effective and truly promote the economic cycle. He added that consumption drives 65 percent of China’s economic growth and floated the idea of a multi-trillion yuan consumption promotion plan.
Li Xunlei, chief economist of Zhongtai Securities, said at an economic forum organized by Tsinghua University PBC School of Finance in Beijing on May 14 that infrastructure investment only indirectly boosts the income of specific groups by increasing employment and investment opportunities. He added that it is unknown how much income workers will obtain from this process, and reckoned that infrastructure investment may lead to unfair distribution.
Huang Yiping, deputy dean of the China Center for Economic Research in Peking University, argued that increasing resident consumption is the best way to boost China’s economy today, according to mainland media. “Without consumption, there will be no orders. Why should companies borrow money to make ends meet without orders,” he said.
Li Daokui, the Mansfield Freeman Chair Professor of economics at Tsinghua University, proposed issuing targeted subsidies to low-income families affected by the pandemic. Meanwhile, Shen Jianguan, the chief economist at JD.com, proposed issuing consumer coupons directly to residents.
We believe that the economists are generally correct in their assessment. Aside from being an inefficient method of stimulating the economy, the CCP will find it difficult to boost infrastructure construction now as the Chinese economy rapidly deteriorates and the property sector crisis is affecting local government revenue. However, the deficiencies of the CCP system, including a lack of holistic social welfare guarantees and official corruption, mean that the idea of the government distributing funds directly to the people to stimulate consumption is virtually unworkable. Efforts to carry out direct distribution could instead further enrich some officials and interest groups, widen the rich-poor gap, and increase resentment in the populace, to the detriment of the regime.
3. Beijing’s recent economic policies are likely to cause more confusion in the officialdom and heighten the CCP regime’s political risks.
On the one hand, the April 29 Politburo meeting on the “present economic situation and economic work” issued a series of measures to rescue the economy, including allowing more “flexibility” in handling epidemic prevention work to facilitate “smooth logistics,” easing of housing restrictions, and encouraging infrastructure construction. Beijing also previously stepped up bond issuance to help the economy.
On the other hand, Xi Jinping doubled down on “zero-COVID” during the May 5 Politburo Standing Committee meeting, while the finance ministry recently called on local governments to curb implicit debt. Officials, lacking the ability to carry out nuanced implementation of policy and placing local interests over that of Party Central, are unlikely to carry out all of Beijing’s orders in the manner intended by the central authorities. This would hamper the Xi leadership’s economic rescue effort and perpetuate the economy’s vicious downward spiral.
