1 Xi’s first public appearance since Beidaihe fails to quash rumors
Aug. 19
Xi Jinping welcomed Vietnamese Communist Party leader To Lam to China in a ceremony in front of the Great Hall of the People in Beijing. The two later held a meeting and signed several bilateral cooperation agreements.
State broadcaster China Central Television’s live footage of the welcome ceremony and the Xi-To meeting all appeared to be filmed from a distance with wide-angle shots. CCTV did not release any medium or close-up shots of Xi. Vietnamese media, however, did release some close-ups of Xi soon after the events took place.
PRC state media and foreign media later released full-body and half-body photos of Xi Jinping and To Lam. CCTV’s “Xinwen Lianbo” evening prime time program also showed full-body and close-up shots of Xi during the welcome ceremony and the bilateral meeting.
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Some overseas Chinese media outlets and commentators linked the lack of close-up and frontal shots of Xi Jinping in the live broadcast and recent rumors about Xi’s health and political “trouble” in Zhongnanhai. They also suspect that the Xi who appeared in public was a body double and that the CCP might be covering up a significant change.
Backdrop
Rumors about Xi Jinping’s health and current dynamics in CCP elite politics (see here and here) have been circulating in Chinese-speaking circles since around the start of the Third Plenum of the 20th Central Committee in July 2024.
Our take
1. Xi Jinping’s meeting with To Lam affirms our earlier analysis that Xi and other top CCP leaders are expected to resume their regular activities in the week of Aug. 19 after the conclusion of the Party elite’s annual Beidaihe work retreat.
2. Footage from CCTV’s “Xinwen Lianbo” shows Xi Jinping looking normal while walking, standing, and conversing. Close-ups of Xi also do not appear to reveal that he is suffering from serious health problems as rumored. It is also impossible to discern from state footage whether body doubles were used.
On paper, CCTV should have no trouble with showing medium or close-up shots of Xi instead of sticking to distant wide-angle shots during the morning live broadcast of the welcoming ceremony and the Xi-To meeting. Unless CCTV was having technical difficulties, their camera angle choice for the live broadcast suggests that they were avoiding certain shots. It is possible that Xi or his Vietnamese counterpart might be suffering from some health problems (such as difficulty walking) that could be revealed if medium or close-up shots were used. If so, then other non-live state footage was likely edited before release.
3. The non-stop circulation of unflattering political rumors about Xi Jinping, particularly in overseas Chinese-speaking circles, hints at the high level of public dissatisfaction towards Xi and his leadership. We also believe that the negative publicity about Xi is partly an attempt by “anti-Xi” forces both inside and outside the country to shape the narrative environment against Xi so that political rumors can eventually be weaponized at critical junctures to destabilize him.
Political rumors about the CCP elite that are circulating overseas tend to find their way back to mainland China. Officials who learn of these rumors could come to believe that there cannot be smoke without fire, and could therefore be inclined to be less motivated in implementing the Xi leadership’s policies if they buy into the idea that Xi Jinping’s political position is unstable.
2 Beijing faces contradiction in propping up home prices and promoting consumption
Consumption remains weak
Aug. 2
Tianfeng Securities released a research report showing a sharp decline in consumption in China’s first-tier cities. Notably, the year-on-year growth rates of total retail sales of consumer goods in Shanghai (-9.4 percent), Beijing (-6.3 percent), Guangzhou (-9.3 percent), and Shenzhen (-2.2 percent) decreased by 11 percent, 12.8 percent, 10.2 percent, and 3.2 percent respectively in June compared to a month ago.
The report also noted:
- The single-month decline of consumption in first-tier cities in June significantly exceeded the national average. The year-on-year growth rate of the national total retail sales of consumer goods in June dropped by 1.7 percentage points to 2 percent, or near the lower bound of the growth rate range (around 3.5 percent) since 2023.
- Automobile sales in China were negative for four consecutive months in 2024, with the year-on-year growth rate falling from 8.7 percent at the start of the year to negative 6.2 percent in June. The contraction in auto sales presented a serious drag on the total retail sales of consumer goods given that it accounted for 27 percent of all retail sales. Among first-tier cities, the year-on-year growth rate of auto sales was negative 13 percent in Beijing, negative 8.3 percent in Guangzhou, negative 3.2 percent in Shenzhen, and negative 30.6 percent in Shanghai.
- The decline in automobile sales could be attributed to:
- June is a traditionally low season for auto sales.
- Extreme weather in June, including an unusually high number of days with high temperatures and heavy rainfall, affected auto sales.
- A high base this June given that the commerce ministry launched a car promotion campaign in June 2023.
- The high base and extreme weather, however, do not adequately explain the significant drop in Shanghai’s auto sales.
Aug. 15
The National Bureau of Statistics released consumer data for July and the first seven years of the year:
- Total retail sales of consumer goods in July increased by 2.7 percent year-on-year to 3.79 trillion yuan.
- Retail sales of consumer goods excluding automobiles increased by 3.6 percent year-on-year to 3.4 trillion yuan.
- Retail sales of goods by enterprises above designated size reached 1.3 trillion yuan, with no growth as compared to a year ago.
- Retail sales of grain, oil, and food products increased by 9.9 percent year-on-year to 161.9 billion yuan.
- Retail sales of automobiles decreased by 4.9 percent year-on-year to reach 379.8 billion yuan.
- Total retail sales of consumer goods from January to July increased by 3.5 percent year-on-year to reach 27.4 trillion yuan.
- Retail sales of consumer goods excluding automobiles increased by 4.0 percent year-on-year to reach 24.7 trillion yuan.
- Retail sales of goods by enterprises above designated size increased by 2.5 percent year-on-year to reach 9.7 trillion yuan.
- Retail sales of grain, oil, and food products increased by 9.6 percent year-on-year to reach 1.2 trillion yuan.
- Retail sales of automobiles decreased by 1.7 percent year-on-year to reach 2.7 trillion yuan.
Property slump persists
Aug. 15
1. The NBS released real estate data for July and the first seven months of the year.
Overview of real estate market from January to July 2024
- Nationwide real estate development investment decreased by 10.2 percent year-on-year to reach 6.1 trillion yuan (calculated on a comparable caliber).
- Residential investment decreased by 10.6 percent to reach 4.6 trillion yuan.
- Sales area of new commercial housing decreased by 18.6 percent year-on-year to reach 540 million square meters.
- Sales area of residential properties decreased by 21.1 percent year-on-year to reach 450 million square meters.
- Sales value of new commercial housing decreased by 24.3 percent year-on-year to reach 5.3 trillion yuan.
- Sales value of residential properties decreased by 25.9 percent to reach 4.7 trillion yuan.
Sales price of commercial residential properties in 70 key cities
- Sixty-six of the 70 key cities surveyed by the NBS reported month-on-month price drops in July, compared to 64 cities in June.
- New home prices fell by 4.9 percent from a year ago, according to calculations by Reuters. This was the sharpest drop since June 2015. New home prices also fell by 0.7 percent month-on-month, marking 13 consecutive months of declines.
Sales price of new commercial properties in July
- First-tier cities:
- New home prices were down 4.2 percent year-on-year (compared to a 3.7 percent decline in June) and down 0.5 percent month-on-month (same rate of decline in June). July marked the 13th consecutive month of price declines.
- Year-on-year, new home prices were down 3.3 percent in Beijing, down 9.9 percent in Guangzhou, down 8.0 percent in Shenzhen, and up 4.4 percent in Shanghai.
- Month-on-month, new home prices were down 0.5 percent in Beijing, down 0.8 percent in Guangzhou, down 0.9 percent in Shenzhen, and up 0.2 percent in Shanghai.
- Second-tier cities:
- New home prices fell by 4.8 percent year-on-year (compared to a 4.5 percent decrease in June) and dropped 0.6 percent month-on-month (compared to a 0.7 percent decrease in June).
- Third-tier cities:
- New home prices dropped by 5.8 percent year-on-year (compared to a 5.4 percent decline in June) and fell by 0.7 percent month-on-month (compared to a 0.6 percent decrease in June).
Sales price of second-hand commercial properties in July
- First-tier cities:
- Second-hand home prices were down 8.8 percent year-on-year (compared to a 9.0 percent decline in June) and down 0.5 percent month-on-month (same rate of decline in June).
- Year-on-year, second-hand prices were down 7.2 percent in Beijing, down 5.6 percent in Shanghai, down 12.4 percent in Guangzhou, and down 9.8 percent in Shenzhen.
- Month-on-month, second-hand prices were unchanged in Beijing, down 0.9 percent in Guangzhou, down 0.9 percent in Shenzhen, and up 0.1 percent in Shanghai.
- Second-tier cities:
- Second-hand prices fell by 8.2 percent year-on-year (compared to a 7.9 percent decrease in June) and declined 0.8 percent month-on-month (compared to a 0.9 percent decrease in June).
- Third-tier cities:
- Second-hand prices dropped by 8.1 percent year-on-year (compared to a 7.7 percent decline in June) and fell by 0.8 percent month-on-month (compared to a 0.9 percent decrease in June).
2. The state-run Shanghai Securities News reported data by Chinese real estate information service provider CRIC on residential properties auctioned through judicial sale in China for the first half of 2024:
- Residential properties listed for judicial auction increased by more than 12 percent year-on-year to exceed 202,000 units.
- The transaction rate for judicial sales was 17 percent, a drop of 7 percent compared to the same period in 2023.
- The average discount rate increased by 3 percent year-on-year to reach 33 percent.
Aug. 19
Bloomberg News reported that a price war is spreading across China’s new-home market as local governments lift restrictions and developers rush to recoup cash. A sudden 18 percent price cut in May at a mid-sized residential project in Beijing’s outskirts forced adjacent new developments to make the same move, according to people familiar with the matter. Meanwhile, other people familiar with the matter said the Shenzhen government approved a 29 percent cut in unit prices for a complex compared with the previous year.
Bloomberg also reported that at least 10 city governments have relaxed or scrapped new home price guidances to allow a bigger role for market demand, citing China Index Holdings Ltd. and public statements.
Aug. 20
Bloomberg reported that the CCP authorities are considering allowing local governments to fund property purchases by issuing special bonds, the proceeds of which are presently restricted to uses like infrastructure and environmental projects, citing people familiar with the matter.
Backdrop
A Politburo meeting on July 30 said that efforts should be focused on boosting consumption to expand domestic demand. The meeting stressed the need to increase residents’ incomes through multiple channels and enhance the capacity of low and middle-income groups to consume.
Our take
The latest economic data from China reflects weak consumption and continued real estate sector woes. The data also reveals contradictions in the CCP authorities’ economic policies that make it virtually impossible for Beijing to achieve its economic goals.
1. The consumption data for July and the first seven months of the year points to severe deflation. Further, the NBS’s figures contain noticeable embellishments.
Some takeaways:
i) The CCP authorities attempted to boost domestic demand at the start of the year through an equipment upgrade and consumer goods trade-in program, as well as promoting the sales of electric vehicles. However, the recent data for retail sales of consumer goods suggests Beijing’s efforts were largely ineffective. Auto sales fell for four consecutive months, retail sales by enterprises above designated size only increased slightly, and the prices of essential goods like grain, oil, and food surged. This suggests that Chinese residents are spending more on necessities and cutting back on other expenditures.
Mainland media reports indicate that core inflation in China (excluding energy and food prices) rose by just 0.4 percent in July, the lowest level since January 2024. Prior to this, prices in general had been dropping for five consecutive quarters, marking the longest period of declines since 1999.
ii) Tianfeng Securities released a research report showing that while total retail sales of consumer goods nationwide grew by 2 percent in June, the figure significantly declined in first-tier cities. First-tier cities in China tend to be economically well-developed, with large populations, vibrant commercial activities, and a wealth of resources and capital. This means that the consumption capacity of residents in first-tier cities should exceed that of cities in the second, third, and four-tier, but the total retail sales of consumer goods ended up being lower than the national growth rate according to Tianfeng Securities’ report.
Assuming the Tianfeng report is largely accurate, this means that the NBS had likely inflated the recent official consumption figures to make them look a lot better than the actual situation on the ground.
iii) The weakness in consumption data aligns with China’s weak credit growth. Data from the People’s Bank of China showed that new renminbi loans issued by domestic banks amounted to just 260 billion yuan in July, a nearly 88-percent drop from the 2.13 trillion yuan issued in June. Bank lending in July also hit a 15-year low and missed analysts’ forecasts.
The steep credit contraction in China hints at serious deflation and a worsening of the “balance sheet recession.” Vicious cycles in the economy are perpetuating, with demand deposits becoming scarcer, reduced monetary liquidity, and intensifying deflation.
2. The real estate downturn has created a negative wealth effect on consumption from falling property prices and is almost certainly a factor behind poor consumption data.
Before 2019, consumption in China was mainly driven by the wealth effect of the real estate boom and the appreciation of property value rather than a real increase in incomes. But the wealth effect bubble quickly popped with the real estate slump that followed the implementation of the “three red lines” and other restrictions, as well as the three years of “zero-COVID.”
China’s real estate sector woes have continued to worsen. This is observable from the significant increase in the number of judicial auctions for residential properties, the decline in transaction rates, the increase in discount rates, and the drop in housing prices across 70 key cities. The depreciation in property value leads to a corresponding shrinking in the wealth of Chinese residents (property accounts for about 70 percent of their wealth) and their capacity to consume.
3. Beijing’s efforts to rescue the real estate sector appear to be having only a limited effect. Concurrently, those policies appear to be counteracting other policies aimed at boosting domestic demand and promoting consumption.
Some takeaways:
i) Sluggish property sales in July suggest that the effects of the CCP authorities’ housing policies issued at the end of May (including lowering down payment ratios and reducing mortgage rates) have already dissipated. Meanwhile, the drive to encourage home purchases naturally leads to reduced spending by residents in other areas, exacerbating the negative impact of the “balance sheet recession.”
ii) The CCP authorities appear to be considering allowing local governments to issue special bonds to fund property purchases. Such a move, however, would increase the debt and fiscal burden of local governments by making less efficient investments that may not move the needle much in stimulating the economy. Already, much of the funding raised by local bond sales is not being utilized in ways that would drive more efficient growth. In the first seven months of the year, local governments raised 4.2 trillion yuan through bond sales. Of the total, approximately 2 trillion yuan went towards refinancing existing debt and about 2.2 trillion yuan was allocated to new projects. And of the 2.2 trillion yuan for new projects, 75.9 percent went towards infrastructure, which generally generates very low returns on investment.
4. In the face of continued economic deterioration, intensifying capital outflows, and declining household incomes, the CCP authorities will find it nearly impossible to both rescue the property sector and simultaneously promote consumption given existing arrangements and contradictions. This bodes ill for China’s economic recovery and Beijing’s ability to actually hit its growth target for the year.
