1 Beijing signals easing of real estate restrictions as debt pressures pile up
CCP authorities signal easing of property policies
Aug. 21
China Real Estate News, a mainland media outlet under the Ministry of Housing and Urban-Rural Development, published an article on page 11 of its paper titled, “Real Estate Financial Risks Intensify, Expect Adjustment and Optimization of Policies to Be Implement As Soon as Possible” (房地產金融風險加劇 期待調整優化政策盡快落地).
The article first noted that the macroeconomic and real estate data for the January-July period released by the National Bureau of Statistics showed that China’s real estate sector is in a downturn. Also, the debt troubles of a number of leading property developers like Country Garden are imposing a drag on the “Zhongzhi network,” including Zhongrong International Trust Co missing payments on products. These developments have further raised market concerns about financial risks.
The article then urged local governments to “adapt to the new situation of major changes in the supply and demand of China’s real estate market.” Local governments should “adjust and optimize real estate policies in a timely manner” according to the July Politburo meeting on economic work, and the easing of real estate policies should revolve around the principles of “preserve, relax, lower” (保、松、降).
The article further explained what was meant by “preserve, relax, reduce.” “Preserve” calls for protecting the capital chains of real estate enterprises and guaranteeing the delivery of buildings. “Relax” means the loosening of all administrative intervention policies that restrict the healthy development of the real estate sector. “Lower” entails reducing the cost of purchasing a home, including lowering the down payment, taxes, fees, and property prices. In particular, developers should be granted greater autonomy in rolling out price cuts and promotions that allow the quick recouping of capital and the enabling of their own self-rescue.
Aug. 23
The state-run Economic Daily published a commentary on page six of its paper titled, “The Position of ‘Houses Are for Living in, Not Speculation’ Will Not Change” (“房住不炒”定位不會改變) that reiterated Beijing’s stance on the issue.
“The positioning of ‘houses are for living in, not for speculation’ should be insisted on and it is not out of date,” the editorial said.
The commentary added, “In some popular cities, housing demand still exceeds supply. Once speculation on house prices resumes, China may go back to the old path of over-reliance on the real estate sector, which will have adverse impacts on economic and social development.”
The commentary also noted that “emphasizing the pillar status of the real estate sector and its role in the macroeconomy is not a return to the old path of over-reliance on the real estate sector and the excessive rise in housing prices, and nor does it mean that house prices are going to rise too quickly again.”
Home prices in cities in Guangdong slashed as much as 50%
Aug. 13
Mainland media reported that a property agent in Shenzhen’s Luohu District was promoting a new apartment among their circle of friends by describing it as “selling at 50 percent discount on the registered price,” with the original price being “98,000 yuan per square meter” and the discounted price “starting from 38,900 yuan per square meter.” The property agent also noted that the average sales price of the apartment before the recent discount is about “45,000 yuan per square meter” and the apartment will be handed over to the buyer in September 2024 after “refined decorations.”
Mainland media added that the apartment mentioned by the agent is a business apartment located in Renheng Century Building in Luohu. The supply of business apartments in Shenzhen has been declining since peaking in 2020, and projects that are still available are facing difficulties being sold.
Aug. 22
Information that a real estate company in Guangdong’s Zhuhai City was selling well-known property in Jinwan District at a 50 percent discount (previously 28,000 yuan per square meter, now discounted to about 14,000 yuan per square meter to 15,000 yuan per square meter) attracted widespread attention on Chinese social media.
According to mainland media reports, the property is located in Jinwan Baolong Plaza in Jinwan’s Aviation New City. Information on the website of the Zhuhai Housing and Urban-Rural Development Bureau noted that the filing price of one of the units in Jinwan Baolong Plaza was 28,000 yuan per square meter in 2021 but dropped to 19,800 yuan per square meter (about 30 percent drop) by the end of July 2023. Real estate companies in China can apply to adjust the filing price every quarter per regulations.
Mainland media added that a staff member in charge of the real estate transaction department of the Jinwan Housing and Urban-Rural Development Bureau said on Aug. 23 that the price reduction and promotion of the Jinwan Baolong Plaza project is “reasonable market behavior.” The staff member added that Zhuhai has a proportional limit on the quarterly increase in the filing price of new commercial housing, but no proportional limit on downward adjustments.
Our take
1. The China Real Estate News article on “adjusting and optimizing” property policies, like the CCP authorities’ other recent announcements of “major” economic measures, lacks specific details about what steps the central and local governments will take to rescue the real estate sector. This trend is in line with our earlier analysis that “Beijing will likely rely on propaganda to cover up China’s economic and social difficulties so that the CCP regime can muddle through its complex financial and economic situation while it ‘delays and waits for change.’”
2. Beijing’s broad guidance to local governments to allow the loosening of real estate restrictions and allow for the lowering of home prices (“preserve, relax, lower”) is a step back from its earlier pledge to ensure “stable land prices, stable housing prices, and stable expectations” (穩地價、穩房價、穩預期). The Xi leadership could have weighed that it is preferable to allow a drop in home prices if it helps real estate developers clear their inventory, pay off their debts, and avoid or minimize defaults, rather than keep home prices stable and facilitate concentrated defaults in the real estate sector. A major explosion of property sector debt risks will inevitably trigger financial risks in the banking system, with the spreading contagion posing an existential crisis for the CCP regime.
Chinese real estate developers have sizable debts to pay off over the next several months. Mainland media cited data from the Enterprise Early Warning risk tracking platform as showing that 960 billion yuan worth of bonds issued by 289 developers will mature between Aug. 21, 2023 to Aug. 20, 2024. Also, developers have to make average monthly repayments of nearly 80 billion yuan on maturing bonds between September to December 2023. From March to April 2024, developers are expected to make monthly payments exceeding 100 billion yuan on their debt. Meanwhile, the CICC Global Institute estimated on Aug. 9 that the real estate-related financial exposure of Chinese banks will be about 60 trillion yuan by the end of 2022.
In view of the pressing real estate debt repayment situation, Beijing’s partial backtracking on property sector restrictions seems like a pragmatic attempt to avert a concentrated triggering of financial risks. However, Beijing is not fully loosening restrictions lest sharply falling real estate prices lead to the depreciation of property collaterals, increased non-performing loans for banks, higher local government debt ratios with asset value shrinking (thereby increasing local government debt risks), reduced shadow banking assets, and the triggering of systemic financial risks.
Meanwhile, the Xi leadership is likely looking to protect Xi Jinping’s “quan wei” (authority and prestige) by reiterating that “houses are for living in, not for speculation” even as it signals an easing of real estate policy.
3. Beijing cannot avoid the possibility that buyer demand stagnates or even falls as developers scramble to cut prices and offer steep discounts, as seen in parts of Guangdong Province. Home buyers seeing the big discounts and price drops will be inclined to wait for even lower prices instead of rushing to make purchases. This means that developers will still struggle to make sales and will be pressured into lowering prices even further to clear their inventory. The resulting vicious cycle on home prices would undermine the CCP authorities’ plan to control debt risks through the limited easing of property restrictions.
Meanwhile, local officials who are confused by Beijing’s “mixed” messaging of both allowing the lowering of home prices and adherence to “houses are for living in, not for speculation” directives could, in attempting to be “politically correct,” end up either favoring one policy more heavily over the other or take the course of “inaction” (不作爲). The uneven implementation of Beijing’s policy will in turn confuse buyers and investors, and further undermine confidence in China’s real estate sector and the Xi leadership’s ability to defuse the property debt crisis. Over time, Beijing’s struggles with the economic crisis will result in a political crisis.
2 Pro-PRC HK businessman indirectly faults Xi for China’s economic woes
Lianhe Zaobao, a Singaporean Chinese language media outlet, published on Aug. 21 a commentary article by the pro-CCP Hong Kong businessman Lew Mon-hung (劉夢熊) titled “The Problem is Economics, the Root Cause is Politics” (问题在经济 根子在政治).
Lew first observed that China is facing “a wave of private enterprise closures, a wave of foreign companies leaving, a wave of sharply shrinking investments, a wave of falling imports and exports, a wave of serious consumption shortage, a wave of debt explosions, a wave of large-scale unemployment, a wave of government financial and tax losses … the three major economic engines of investments, exports, and consumption are all underpowered and have even stalled.” He added that the “three new economic engines” are “the National Bureau of Statistics, the Central Propaganda Department, and Xinhua News Agency,” and “only the trumpet is left in the toolbox to save the economy.” Lew then noted, “the problem is economics, the root cause is politics.”
Lew continued, “China is the most politically-tied economy in the world today, bar none!” He wrote that Deng Xiaoping’s “reform and opening up” and “China-U.S. friendship” were important driving forces in China’s economic development and put the country on a “steady upward trajectory” in the first 30 years of “reform and opening up.” However, China’s economic development “has fallen into a spiraling downward trajectory in recent years,” with the “most fundamental reason for the economic reversal lying in politics.”
Lew then listed the political factors that he believed were affecting the Chinese economy, including:
- “strengthening the role of [communist] ideology in politics,”
- “refusal to carry out reform of the political system,”
- “the state advances while the private sector retreats,”
- “establishment of Party Committees and branches in private and foreign enterprises,”
- “local governments constantly squeezing and extracting from private companies,”
- “industrial consolidation being full of arbitrariness.”
Lew further criticized the CCP authorities for:
- “ordering the surrender of immigration documents in an attempt to stop the ‘migration wave,’”
- “creating a pan-political environment that stifles economic development,” “pursuing wolf-warrior diplomacy for years,”
- “being pro-Russian and anti-American,”
- “causing U.S.-China relations to plummet to their lowest point since President Nixon’s visit to China in 1972,”
- “causing China to lose U.S. and Western capital, technology, and markets,” which have led to “a significant contraction of China’s economy, a surge in unemployment pressure, and the return of poverty to the general public.”
Lew wrote that “absolute power without checks and balances is the greatest corruption,” and added that “reform of the political system” is the “only way to ensure high-speed and high-quality economic development.” He then cited Vietnam as an example of how “the expansion of democracy from the Party to society has led to healthy and prosperous economic development.”
In concluding, Lew questioned whether the current CCP leadership, being the “second generation of peasant insurgent leaders,” has a “sense of historical mission and vision to realize the marketization of the economy, the rule of law in society, and the democratization of politics through reforming the political system” as they are caught up by the historical inertia of preserving the regime (打江山, 坐江山).
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Overseas Chinese media and social media paid extensive attention to and hotly discussed Lew Mon-hung’s article. Some commentators felt that Lew had been criticizing Xi Jinping without naming him throughout the piece, and that the publication of Lew’s commentary in the “pro-CCP” Lianhe Zaobao was a challenge to Xi’s “quan wei” by Party insiders and was tantamount to a “fight callout.”
More on Lianhe Zaobao and Lew Mon-hung
Lianhe Zaobao
1. Lianhe Zaobao is the largest Chinese language newspaper by circulation in Singapore and an influential overseas Chinese language media. The paper has long been regarded as being pro-PRC by Chinese commentators because it frequently carries commentary and editorial pieces from PRC state media and other pro-CCP sources (including Hong Kong media), and is one of few foreign newspapers that the CCP allows to circulate on the mainland.
Miles Yu, a former China adviser to the Trump administration, wrote in an April 2012 column in The Washington Times that Lianhe Zaobao had “for many years operated closely with the Communist Party chief Bo Xilai” in Chongqing, and that the Chongqing authorities had paid “large amounts of money to the paper for printing favorable news about Chongqing’s developments” under Bo.
The Washington Post claimed in a July 24, 2023 article that Lianhe Zaobao “routinely echoes some of Beijing’s most strident falsehoods, including denying evidence of rights abuses in Xinjiang and alleging that protests in Hong Kong and in mainland China were instigated by ‘foreign forces,’ according to an examination of more than 700 Lianhe Zaobao articles through 2022 and early 2023” by the Post and the Australian Strategic Policy Institute. The Post added that Lianhe Zaobao “has been running regular opinion columns since 2016 from at least two CCP officials without noting their Party affiliation, referring to them simply as China affairs commentators.”
On Aug. 5, Lui Tuck Yew, Singapore’s Ambassador to the United States, wrote a letter to the Post editor disputing their report that Lianhe Zaobao “echoes Beijing’s propaganda.” Lui added, “It bears repeating that Singapore conducts its foreign policy based on our own interests. We do not pick sides but uphold consistent principles.”
2. Lianhe Zaobao had previously carried at least one commentary that was widely believed to be indirectly critical of Xi Jinping. For instance, Lianhe Zaobao published on Feb. 18, 2022 a piece by Liang Xingguo, an associate professor at the Shanghai University of Finance and Economics’ law school, titled “Term Limits: An Important Institutional Basis of the Republic” (任期制: 共和國重要的製度基礎).
China watchers noted that Liang’s article was aimed at Xi and his third term ambitions. Liang’s piece also happened to be published about a month after “An Objective Evaluation of Xi Jinping” was posted on a PRC-sponsored overseas Chinese language internet forum and was widely reported by overseas Chinese media and commented on in early February.
Lew Mon-hung
The Hong Kong businessman Lew Mon-hung previously served as a member of the 11th National Committee of the Chinese People’s Political Consultative Conference and a member of the CPPCC’s Foreign Affairs Committee. He also served as a member of the Hong Kong government’s strategic development committee and as chairman of the “Hundred Strategies Think Tank” (百家戰略智庫).
Lew was very pro-PRC before 2013 and backed Leung Chun-ying’s candidacy for Hong Kong Chief Executive in early 2012. However, Lew turned on Leung after alleging that the latter did not fulfill his promise to appoint Lew to the Hong Kong Executive Council and nominate him to serve as a member of the CPPCC National Committee. Lew was later arrested by the Hong Kong authorities on various charges and was sentenced to two years in jail (Lew would serve two-thirds of his sentence and was released on good behavior).
During the anti-extradition bill protests in 2019, Lew repeatedly criticized then-Hong Kong leader Carrie Lam for violating “One Country, Two Systems,” and participated in protests.
Western doom and gloom
Lew Mon-hung’s pessimism and negativity about the Chinese economy and the Xi leadership is echoed in the Western press, which has become increasingly bearish on China as the PRC releases data each month that underscore economic weakness and the virtually non-existent post-pandemic rebound, as well as with the noticeable worsening of China’s real estate debt crisis, local government debt troubles, and the looming shadow banking crisis.
Notable “China doom and gloom” articles published in Western media around the time Lianhe Zaobao carried Lew’s piece include:
Aug. 20
1. The Wall Street Journal — “China’s 40-Year Boom is Over. What Comes Next?” (Website cover story)
Highlights:
- “For decades, China powered its economy by investing in factories, skyscrapers and roads. The model sparked an extraordinary period of growth that lifted China out of poverty and turned it into a global giant whose export prowess washed across the globe … Now the model is broken.”
- “China consistently defied economic cycles in the four decades since Deng Xiaoping started an era of ‘reform and opening’ in 1978, embracing market forces and opening China to the West, in particular through international trade and investment.”
- “Xi and some of his lieutenants remain suspicious of U.S.-style consumption, which they see as wasteful at a time when China’s focus should be on bolstering its industrial capabilities and girding for potential conflict with the West, people with knowledge of Beijing’s decision-making say … The leadership also worries that empowering individuals to make more decisions over how they spend their money could undermine state authority, without generating the kind of growth Beijing desires.”
- “… guided by a desire to strengthen political control, Xi’s leadership has doubled down on state intervention to make China an even bigger industrial power, strong in government-favored industries such as semiconductors, EVs and AI.”
2. Bloomberg News — “Run It Cold: Why Xi Jinping is Letting China’s Economy Flail”
Highlights:
- “Xi Jinping’s quest to rewrite the playbook that drove China’s economic miracle for a generation is facing its sternest test yet … The $18 trillion economy is decelerating, consumers are downbeat, exports are struggling, prices are falling and more than one in five young people are out of work. Country Garden Holdings Co., with 3,000 pending property projects up and down the country, is on the cusp of default and protestors have gathered at Zhongzhi Enterprise Group Co., one of the biggest shadow banks, demanding their money as payments are halted … Many of those woes can be traced back to President Xi’s determination to shift away from the debt-fueled growth model of his predecessors.”
Aug. 24
The Economist — “Why China’s Economy Won’t Be Fixed” (Cover story)
Highlights:
- “After China rejoined the world economy in 1978, it became the most spectacular growth story in history … Yet instead of roaring back after the government abandoned its ‘zero-COVID’ policy at the end of 2022, it is lurching from one ditch to the next.”
- “China is also suffering from something more profound than weak demand and heavy debt. Many of its challenges stem from broader failures of its economic policymaking—which are getting worse as President Xi Jinping centralizes power.”
- “A decade or so ago China’s technocrats were seen almost as savants … Today policymakers are in a bind … [Beijing’s] feeble response to tumbling growth and inflation is the latest in a series of policy errors.”
- “Why does the government keep making mistakes? One reason is that short-term growth is no longer the priority of the Chinese Communist Party (CCP). The signs are that Mr Xi believes China must prepare for sustained economic and, potentially, military conflict with America. Today, therefore, he emphasizes China’s pursuit of national greatness, security and resilience. He is willing to make material sacrifices to achieve those goals, and to the extent he wants growth, it must be ‘high quality’ … Yet even by Mr Xi’s criteria, the CCP’s decisions are flawed.”
- “Mounting policy failures therefore look less like a new, self-sacrificing focus on national security, than plain bad decision-making. They have coincided with Mr Xi’s centralization of power and his replacement of technocrats with loyalists in top jobs.”
- “The fact that China’s problems start at the top means they will persist. They may even worsen, as clumsy policymakers confront the economy’s mounting challenges.”
Our take
1. Lew Mon-hung and the Western press are correct in assessing that politics is the fundamental factor behind the PRC’s current economic woes. We have long stated that all issues in China (including economic issues) are downstream from CCP elite politics, and the core problem of CCP elite politics is factional struggle.
Xi Jinping himself is undoubtedly aware that he has to resolve the core issue of factional struggle to get a handle on the PRC’s other issues. But Xi’s power consolidation measures, including promoting ideology, highly centralizing power in his person, and his reshuffle formula (in countering The Economist’s assertion, we have noted on numerous occasions that Xi does elevate technocrats to senior positions when it benefits him politically), have emphasized the systemic deficiencies of the CCP authoritarian system (pernicious Party culture, “prefer left rather than right,” “one-size-fits-all” approaches to policy implementation, etc.) even as they successfully marginalize the Jiang Zemin faction and other “anti-Xi” forces in the regime. Ironically, in the course of empowering himself sufficiently to fix the Chinese economy and resolve other issues, Xi ended up compounding his and the CCP regime’s problems.
As the incumbent leader of the CCP, Xi is naturally responsible for the multiple policy failures under his leadership, and particularly “zero-COVID.” However, Xi cannot be entirely faulted for China’s current economic and social problems (even if his policies did exacerbate them) because many of those issues (local government debt crisis, property debt crisis, etc.) had roots in the Jiang-Hu era when the Jiang faction dominated the regime. China’s economic woes stemming from Jiang faction policies began to emerge after the 2008 global financial crisis (Lew indirectly referenced this in observing that the Chinese economy saw “steady upward trajectory” only until the first 30 years of “reform and opening up,” or around 2009-2010), and the Xi leadership’s de-risking and deleveraging efforts were partly aimed at addressing the mess (爛攤子) it inherited from the Jiang faction.
We previously wrote that “Xi is a symptom, and not an aberration, of the Party system.” Laying all the problems of the CCP regime at the feet of Xi Jinping without also holding to account Xi’s predecessors and the Party at large will inevitably lead to the perpetuation of CCP-linked crises even if Xi is somehow deposed. As we earlier observed, “Because the CCP’s cutthroat political culture does not lend itself to change, Xi’s successors, far from ‘reforming’ the Party, could ultimately prove to be just as willing—if not politically obliged—to continue in the same pernicious cycle of expanding regime power and human rights abuse.” Therefore, the CCP and its elite must be exposed in its entirety to deny both the opportunity of adopting the strategy of “cicadas shedding skin” (金蟬脫殼) to escape crisis and ensure full accountability.
2. From Lew Mon-hung’s earlier clashes with and criticisms of pro-CCP Hong Kong leaders like Carrie Lam and Leung Chun-ying, he seems like enough of a maverick to operate in his own capacity and pen the scathing article that obliquely blamed Xi Jinping and his “politics” for China’s economic problems. As a businessman, Lew could also have been directly affected by the deteriorating Chinese economy and thus has a personal ax to grind with Xi. Lew could also have been influenced by the increasing negative coverage of China’s economy and Xi Jinping in both Western and overseas Chinese media, and felt a need to restate many of the points percolating in the public discourse in a commentary piece for a major overseas Chinese language newspaper. Meanwhile, Lianhe Zaobao publishing Lew’s commentary would be in line with Singapore’s stance of “not picking sides” and allowing both positive and negative views of Xi Jinping and the PRC to appear on its pages.
An alternative explanation for Lew’s article is that he represents various interest groups both inside and outside China (possibly including the CCP’s “old friends” on Wall Street) who benefited from Jiang faction policies (including the informal “making a fortune while keeping a low profile” [悶聲發大財]) and/or have a huge beef with Xi Jinping for curbing their earnings and harming their interests. By calling for “reform of the political system,” this group is likely more interested in the sidelining of Xi and having the CCP revert things to the way they were during the Jiang-Hu era than have actual regime change and “chaos” in China.
