1 State institutions’ submission of work reports to Xi shows latter firmly in charge
Xi receives work reports from state institutions
Jan. 9
The CCP Politburo Standing Committee held a meeting to hear work reports from the leading Party groups of state institutions, including the Standing Committee of the National People’s Congress, the State Council, the National Committee of the Chinese People’s Political Consultative Conference, the Supreme People’s Court, the Supreme People’s Procuratorate, and the Secretariat of the Central Committee.
Xi Jinping presided over the meeting and delivered an important speech. Key points about the meeting per the official communiqué include:
- The meeting emphasized that upholding the Party’s comprehensive leadership is the CCP’s greatest political advantage. Also, adhering to the centralized and unified leadership of the Central Committee is the fundamental reason for the Party’s continuous victories.
- The meeting said that hearing work reports from the NPC Standing Committee, the State Council, the CPPCC National Committee, the Supreme People’s Court, the Supreme People’s Procuratorate, and the Secretariat is an important institutional arrangement to uphold and strengthen the Party’s comprehensive leadership, as well as the centralized and unified leadership of Party Central. The meeting added that this important institutional arrangement must be maintained over the long term.
- The meeting believed that over the past year, the leading Party groups of the NPC Standing Committee, the State Council, the CPPCC National Committee, the Supreme People’s Court, and the Supreme People’s Procuratorate have persisted in being guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, have firmly safeguarded the “quan wei” and centralized leadership of Party Central, and have earnestly implemented the guided principles of the 20th Party Congress and the second and third plenary sessions of the 20th Central Committee. Also, the Secretariat of the Central Committee, under the leadership of the Politburo and its Standing Committee, had fulfilled its duties, actively taken action, and carried out substantial work.
- The meeting stressed that this year, the leading Party groups of the NPC Standing Committee, the State Council, the CPPCC National Committee, the Supreme People’s Court, and the Supreme People’s Procuratorate must be guided by Xi Jinping Thought; must fully implement the principles of the 20th Party Congress and the second and third plenary sessions of the 20th Central Committee; must deeply comprehend the decisive significance of the “Two Establishes,” strengthen the “four consciousnesses,” be firm in the “four confidences,” and achieve the “Two Safeguards”; and must adhere to the highest political principle of the Central Committee’s centralized and unified leadership. The Secretariat of the Central Committee must also align with the deployments and requirements of the Politburo and its Standing Committee, fully implement the guiding principles of the 20th Party Congress and the second and third plenary sessions of the 20th Central Committee, and accomplish the tasks entrusted to it by Party Central with high quality.
Party, gov’t, and military leaders study Xi’s speech at the CCDI plenum
Jan. 7 to Jan. 9
Xinhua and People’s Daily published commentaries discussing Xi Jinping’s speech at the fourth plenary session of the 20th CCDI. The headlines of the commentaries are:
- Xinhua: “Persist in Self-revolution to Seize the Historical Initiative” (堅持自我革命 贏得歷史主動)
- Xinhua: “Persist in the Spirit of Reform and Strict Standards in Governing the Party” (堅持用改革精神和嚴格的標準管黨治黨)
- Xinhua: “Resolutely Fight the Tough, Prolonged, and Comprehensive Battle Against Corruption” (堅決打好反腐敗鬥爭攻堅戰持久戰總體戰)
- People’s Daily: “Further Strengthen Determination and Confidence in the Fight Against Corruption” (進一步堅定反腐敗鬥爭的決心和信心)
- People’s Daily: “Persist in the Principle That Those Who Forge Iron Must Be Strong Themselves” (堅持打鐵必須自身硬)
- People’s Daily: “No Stopping, No Backing Down” (一步不停歇 半步不退讓)
Jan. 8
PRC state media released the communiqué of the fourth plenary session of the 20th Central Commission for Discipline Inspection. The communiqué noted that anti-corruption efforts in 2025 will expand beyond the key sectors targeted in the previous year (finance, state-owned enterprises, energy, tobacco, healthcare, sports, infrastructure projects, and procurement) to include universities and development zones.
The communiqué concluded by urging anti-corruption agencies and personnel to unite more closely around Party Central with Comrade Xi Jinping at the core, and to advance the high-quality development of discipline inspection and supervisory work.
Jan. 10
1. Politburo Standing Committee members Zhao Leji, Wang Huning, and Li Qiang separately presided over meetings of the leading Party groups of the NPC Standing Committee, the CPPCC National Committee, and the State Council respectively. The meetings focused on studying and implementing the key points from Xi Jinping’s important speech at the fourth plenum of the 20th CCDI.
2. The discipline inspection commission of the Central Military Commission held an expanded meeting. CMC vice chairman He Weidong delivered a speech at the meeting where he emphasized the need to uphold Xi Jinping Thought as the guiding principle, to advance the comprehensive and strict governance of the Party and the military, and implement the CMC Chairman Responsibility System.
Zhang Shengmin, the secretary of the CMC discipline inspection commission, presided over the meeting and delivered a work report.
Our take
The above developments underscore Xi Jinping’s paramount status in the CCP regime and debunk the speculation that has persisted since the second half of 2024 that Xi has “lost power” (失勢) or has “lost control of authority” (大权旁落).
1. The submission of work reports to Xi Jinping by leading Party groups of state institutions at the Politburo meeting on Jan. 9 is a mechanism through which Xi publicly demonstrates that his political status surpasses that of other Politburo Standing Committee members and that the “collective leadership” system has been marginalized. Xi’s paramount position is further underscored by the meeting’s declaration that upholding the Party’s comprehensive leadership is the CCP’s “greatest political advantage” and that adhering to the centralized and unified leadership of the Central Committee is the “fundamental reason” for the Party’s “continuous victories.”
Other signs that Xi remains large and in charge are the commentaries discussing Xi’s speech at the fourth plenary session of the 20th CCDI published by Party and state mouthpieces, as well as Party, government, and military leaders holding meetings to “study and implement” Xi’s speech and requirements. We analyzed in the Dec. 13, 2024 newsletter that “Xi can only be said to be losing his grip on power if there are public deviations from current practices meant to entrench his ‘quan wei.’” The recent emphasis in the CCP regime on adhering to Xi’s speech and the “centralized and unified leadership of Party Central” is a clear indication that there are no changes in Xi’s political status and he has not been covertly usurped as some observers have speculated.
2. The promotion and expansion of Xi’s anti-corruption campaign reflects his continued ability to operate beyond the constraints of the “collective leadership.” Aside from targeting “anti-Xi” elements and corrupt officials, Xi could also subsequently purge loyalists and allies whose power he believes has grown excessive or have formed new “cliques and factions” that could potentially challenge his rule.
3. The forthcoming expansion of areas to be targeted by anti-corruption efforts in 2025 as indicated in the communiqué of the fourth plenary session of the 20th CCDI suggests that corruption in the CCP regime is more pervasive than the Xi leadership previously accounted for and could be spreading to broader domains.
Beijing’s nonstop war against corruption will likely do more harm than good to its governing ability and undermine its attempt to resolve the many crises currently plaguing the regime.
2 PBoC bond-buying freeze reflects limitations of Beijing’s economic rescue effort
On Jan. 10, the People’s Bank of China announced that it would halt purchases of sovereign debt in January 2025 given the “recent persistent excess demand.” The central bank said it would resume buying “at a proper time depending on supply and demand in the government bond market.”
Within about 10 minutes after the PBoC issued its statement, yields in the interbank government bond market rose by about 3 basis points. However, the brief uptick in yields on 10-year and 30-year government bonds were erased after buying activity resumed.
On the same day, the U.S. Treasury 10-year yield rose to 4.76 percent, the highest level since November 2023. This pushed the China-U.S. yield spread to a record high negative 313 basis. Investors in the futures options market anticipate that the yield on the U.S. Treasury 10-year yield could reach 5 percent in the future; this would widen the China-U.S. yield spread even further. Also on Jan. 10, the Shanghai and Shenzhen stock indexes declined by 1.33 percent and 1.8 percent respectively.
On Jan. 11, the onshore renminbi exchange rate fell to 7.3327 against the U.S. dollar on Jan. 11, a 1-year low. Earlier on Jan. 9, the PBoC announced plans to issue 60 billion yuan (about $8.2 billion) worth of 6-month central bank bills in Hong Kong in January 2025. The central bank appeared to be draining offshore renminbi liquidity in Hong Kong with the record-high issuance, making it more challenging to short the yuan and help stabilize the offshore RMB rate.
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The PBoC made a net purchase of 1 trillion yuan in government bonds from August to December 2024, according to a public announcement on government bond transactions published on the central bank’s website.
Backdrop
Jan. 6
Reuters reported that the Shanghai and Shenzhen stock exchanges asked at least four large mutual funds to buy more stocks than they sold on Dec. 31, Jan. 2, and Jan. 3, citing sources familiar with the matter.
One source said that per guidance from the exchanges, the funds could sell stocks, but had to add more positions soon to fill the gap if total selling values exceeded purchases.
Jan. 9
The PRC National Bureau of Statistics released China’s consumer price index and producer price index data for December 2024.
- The national CPI rose by 0.1 percent year-on-year and remained flat month-on-month.
- The national PPI and purchasing prices for industrial producers both declined by 2.3 percent year-on-year and 0.1 percent month-on-month.
Our take
The PBoC has been making large purchases of government bonds because China’s financial system lacks sufficient liquidity to absorb the CCP authorities’ large-scale issuance of sovereign bonds and local government bonds. Beijing previously announced a “12 trillion yuan debt package” in November 2024 while mainland and international media reported expectations for Beijing to issue 2 trillion yuan in special government bonds that year.
The CCP authorities are issuing sovereign bonds and local government bonds on a large scale to increase their capacity to address fiscal challenges. The central bank’s temporary halting of government bond purchases reflects the difficulties Beijing has in reigniting the sluggish Chinese economy.
1. The CCP authorities have been issuing government bonds on a large scale (see here and here) as part of its measures to tackle various fiscal and economic troubles facing the regime. However, the move comes with its negative consequences.
The large-scale issuance of government bonds inevitably draws liquidity away from capital markets and the financial system, resulting in stock market declines. Between Dec. 13, 2024 (following the conclusion of the Central Economic Work Conference) and Jan. 10, 2025, the Shanghai Composite Index fell by 8.46 percent while the Shenzhen Component Index dropped by 10.6 percent. During the same period, net capital outflows from both indexes totaled 890.677 billion yuan. Stock market declines affect investor confidence and the outlook on China’s economic and financial situation more broadly.
Meanwhile, market expectations that the PBoC will cut the reserve requirement ratio and interest rates are prompting financial institutions to preemptively buy bonds to lock in yields and allocate low-risk assets. This has caused government bond yields to hit new lows, the negative yield spread between Chinese and U.S. government bonds to reach historic levels, and the RMB exchange rate to drop to its lowest point in over a year.
2. The CCP authorities rolled out a series of economic support policies at the end of September 2024 and pledged “more proactive fiscal policy and moderately loose monetary policy” in December 2024 to address economic weakness and a deflationary spiral. The early results of those measures, however, are not optimistic. China’s official CPI and PPI data for December 2024 shows that while the economic support measures have had some effect, the Chinese economy remains mired in deflation and the boost from the stimulus is likely to be short-lived.
Benchmark bond yields have fallen to an all-time low in China as businesses, investors, and consumers lose confidence in the CCP authorities’ ability to turn around the economy. Notably, Beijing’s fiscal measures such as debt restructuring for local governments and civil servant salary raises do not align with market expectations of increased spending on social welfare to stimulate consumption.
In theory, the CCP authorities’ support measures should provide some relief to the economy. For instance, restructuring local government debt could help clear overdue payments to businesses, provide small and medium-sized enterprises (SMEs) with cash flow to resume operations and pay wages, and create fiscal room for infrastructure investment. Raising civil servant salaries should also help drive up consumption. But the situation on the ground may not stack up with that on paper. As we previously analyzed, increasing the wages of government workers might have a limited effect on boosting consumption, but comes with the risk of spiking public dissatisfaction and eroding confidence in the authorities. Meanwhile, about 60 percent of the 9.8 trillion yuan raised by local governments through bond issuance in 2024 (a 5 percent increase from a year ago and a record high amount) was used to roll over existing debt while the remainder was invested in low-yield projects.
3. Despite the recent suspension, the PBoC will eventually have to resume making large purchases of government bonds to make up for the insufficient liquidity in the financial system and help to address local fiscal shortages (including repaying maturing debt and paying civil servants overdue wages and wage increases) and cope with the economic situation (including the potential increase of U.S. tariffs on Chinese exports). This will in turn put further pressure on yields to fall and increase downward pressure on the RMB. The resulting quagmire is one that Beijing cannot easily extricate itself from as it continues to search within the CCP system for solutions to China’s economic problems.
