1 Is Beijing’s rare earth move really the fault of a ‘lower-level official’?
On Oct. 13, U.S. Treasury Secretary Scott Bessent gave details about the current state of U.S.-China affairs following the escalation of trade tensions last week. In the week of Oct. 6, the PRC expanded rare earth restrictions and President Donald Trump responded by threatening to impose 100 percent tariffs.
Bessent made the following noteworthy points:
- There has been “substantial communications over the weekend” since the spike in Sino-U.S. trade tensions, and things have “substantially de-escalated.”
- The overall Sino-U.S. relationship is “good” and Trump’s 100 percent tariffs “does not have to happen.”
- PRC and U.S. officials will hold “staff-level meetings” in Washington in the week of Oct. 13 during the annual gathering of the International Monetary Fund and World Bank.
- Trump and Xi are still expected to meet in South Korea at the end of the month. Bessent expects to meet his counterpart, PRC vice minister He Lifeng, before the Trump-Xi meeting.
- Bessent believes the PRC’s rare earth move was a “miscalculation,” but “we are communicating now” and he is “confident that we can move forward.”
- Bessent said that Trump thinks that the PRC’s move “may have been from a lower-level official.” He added that “the Chinese system is quite brittle, so this may not have come from Xi Jinping himself.” Bessent further noted that the rare earth move “may have come from a Chinese hardliner. They have hardliners on their side, too, who are always trying to undermine the relationship.”
- Bessent said, “This is China versus the world. They have pointed a bazooka at the supply chains and the industrial base of the entire free world, and we’re not going to have it. A group of bureaucrats in China cannot tell us and our allies how to run our supply system.”
- Bessent said that the U.S. has “substantial levers on our own … side that we can pull” if the PRC is not up for discussion on the matter. “We have plenty of straight, brute-force countermeasures that we can pull,” said Bessent, hinting at the possible expulsion of hundreds of thousands of Chinese students from the U.S. and potential actions in software, minerals, and financial services.
Our take
1. Secretary Bessent’s remarks suggest that the Trump administration presently prefers to de-escalate trade tensions rather than go hard on the PRC with tariffs and other retaliatory measures. Should President Trump prioritize conciliation over punishment, the CCP’s rare earths gambit would likely pay off and deliver a crucial “win” for Xi Jinping head of the Fourth Plenum of the 20th Central Committee.
Trump, however, is known to abruptly and dramatically reverse course on his positions. Xi and the CCP may not get their desired outcomes if they attempt to exert more leverage on the U.S. during the various levels of bilateral talks over the next two weeks, and Trump catches on to those efforts.
2. Secretary Bessent’s remark that the PRC’s rare earths move could be the work of a “lower-level official” or “hardliners” does not stack with present realities in the CCP regime.
The “lower-level official” theory does not hold water given Xi Jinping’s enhanced control over the regime and requirement that all major decisions go through him. Rare earths controls are a major decision as it concerns the CCP’s economic development strategy, which includes efforts to protect the PRC’s industrial and supply chains and strengthen the dependence of other countries on China. Given the significance of rare earths controls to the CCP’s broader economic strategy, Xi will almost certainly have to give his personal stamp of approval to policies pertaining to those controls; lower-level officials simply cannot sign off on policies on rare earths controls without going through Beijing first.
There are at least two other reasons why the “lower-level official” theory does not make sense. First, implementing rare earths restrictions requires coordination between the commerce ministry and customs authorities. This makes it practically impossible for lower-level officials from either department to unilaterally make the move without alerting each other and consequently the higher-ups. Second, many CCP officials have defaulted to “lying flat” (i.e. doing the bare minimum) as the Xi leadership emphasizes its “top-down” approach, and have become unwilling to be proactive or creative in policy implementation. Given the prevalence of “lying flat” in the officialdom, virtually no lower-level official would want to bear responsibility for imposing rare earths restrictions without Beijing’s approval.
The “hardliner” theory is hugely flawed given the current political status quo in the CCP regime and the Xi leadership’s own policies. Xi Jinping has repeatedly emphasized the need to strengthen and enhance the PRC’s international leadership in key industries and to develop certain “trump card” or “assassin’s mace” technologies to counter potential external supply cutoffs. For example:
- April 10, 2020: At the seventh meeting of the Central Financial and Economic Affairs Commission, Xi stressed that after the COVID-19 lockdowns, the PRC’s nationwide resumption of work and production should focus on reshaping industrial chains, including “consolidating and enhancing the international leading position of advantageous industries and forging several ‘assassin’s mace’ technologies,” and “tightening global industry chains’ dependence on China to create a strong deterrent and countermeasure against any external supply cutoff.”
- October 16, 2022: In his report to the 20th Party Congress, Xi stated that the PRC must “master a number of ‘assassin’s mace’ technologies to achieve a leap from following, to running alongside, and then leading, and strengthen the resilience and competitiveness of China’s industrial and supply chains.”
- June 24, 2024: At the National Science and Technology Conference, Xi said, “We must strengthen breakthroughs in key core technologies, accelerate achieving ‘from zero to one’ innovation, master a series of ‘assassin’s mace’ technologies with independent intellectual property rights, promote the development of new quality productive forces, seize the high ground in global technological competition, and ensure that China’s industrial and supply chains remain invincible in international competition.”
Therefore, the recent rare earths move falls squarely within Beijing’s goals of securing and weaponizing the PRC’s industrial and supply chains, and is not some fringe “hardline” position. Meanwhile, Xi embodies the so-called “hardliner” position that views a “great power” struggle between the PRC and the U.S. as inevitable and believes that the bilateral relationship is destined for rough waters. As there is no position that is more “hardline” and Xi is the paramount leader, the PRC’s recent expansion of rare earths restrictions could have only come from Xi.
Secretary Bessent’s “lower-level official” and “hardliner” theories ultimately deflect blame for the CCP’s rare earths move from Xi Jinping. If those theories were thought up by the Trump team, then it signals that President Trump is not keen on imposing an additional 100 percent tariffs on China and is more in the mood to cool trade tensions with the PRC. Alternatively, Bessent’s theories could have been provided to the Trump administration by PRC officials and other CCP elements through various channels. If so, this indicates that the Xi leadership has always intended for the rare earths move to be a gambit. By blaming non-existent “lower-level officials” and “hardliners” for the expanded rare earths restrictions, the Xi leadership can now step in as the “savior” (a classic CCP deception tactic) in a bid to manipulate President Trump into making certain concessions ahead of a Xi-Trump meeting and the Fourth Plenum.
3. Secretary Bessent’s “hardliner” theory — while very unlikely — poses problems for advocates of the “Xi losing power” camp.
For one, if “hardliners” who are “always trying to undermine” the Sino-U.S. relationship have to resort to the desperate (zero percentage chance of success) move of policy sabotage to create trouble for Xi Jinping, then it follows that Xi is currently very much in charge. With Beijing having cleared up this “misunderstanding” with Washington, the “hardliners” are no nearer to ousting Xi than before; on the contrary, the rumors and speculation hold that Xi is on the verge of being dethroned.
Another problem the “hardliner” theory poses is why those who oppose Xi seek to upend the U.S.-China relationship. The “Xi losing power” camp claims that “anti-Xi” elements have already placed Xi Jinping under their control and are “liberal” and reform-minded. However, Bessent’s theory indicates that the “anti-Xi” elements are just as “hardline” as Xi, and there is no real daylight between Xi and his opponents within the regime.
2 China’s September financial data shows continued heavy reliance on gov’t bonds
PBoC data for September, first nine months of 2025
Oct. 15
The People’s Bank of China released financial data for September and the first nine months of 2025.
Total social financing
- January to September 2025 period:
- Total social financing grew by 30.09 trillion yuan, compared with 25.67 trillion yuan from the previous year (a 17.2 percent year-on-year increase).
- Renminbi loans issued to the real economy increased by 14.54 trillion yuan, compared with 15.39 trillion yuan from the previous year (a 5.6 percent year-on-year decrease).
- Net corporate bond financing was 1.57 trillion yuan, down 15.1 billion yuan from the previous year (a 1.0 percent year-on-year decrease).
- Net government bond financing was 11.46 trillion yuan, up 4.28 trillion yuan from the previous year (a 59.6 percent year-on-year increase).
- September 2025:
- Total social financing grew by 3.53 trillion yuan, compared with 3.73 trillion yuan a year earlier (down 6.4 percent year-on-year).
- RMB loans to the real economy rose 1.61 trillion yuan, compared with 1.97 trillion yuan a year earlier (down 18.3 percent year-on-year).
- Net corporate bond financing was 10 billion yuan, compared with 83.3 billion yuan a year earlier (down 88.0 percent year-on-year).
- Net government bond financing was 1.19 trillion yuan, compared with 2.01 trillion yuan a year earlier (down 40.6 percent year-on-year).
Money supply
- Broad money (M2) increased by 8.4 percent year-on-year to 335.38 trillion yuan.
- Narrow money (M1) increased by 7.2 percent year-on-year to 113.15 trillion yuan.
RMB loans
- New RMB loans increased by 1.29 trillion yuan in September 2025, down 18.9 percent year-on-year (1.59 trillion yuan in the same month last year).
- New RMB loans grew 14.75 trillion yuan in the January-September 2025 period, down 7.9 percent year-on-year (16.02 trillion yuan in the same period last year).
- Household loans:
- Household loans increased 389 billion yuan in September 2025 (down 22.2 percent year-on-year).
- Household loans increased 1.10 trillion yuan in the January-September 2025 period (down 43.3 percent year-on-year).
- Short-term household loans increased 142.1 billion yuan in September 2025 (down 47.4 percent year-on-year).
- Short-term household loans decreased 230.4 billion yuan in the January-September 2025 period, compared with an increase of 402.4 billion yuan in the same period last year.
- Medium- and long-term household loans in September 2025 increased 250 billion yuan (up 8.7 percent year-on-year).
- Medium- and long-term household loans in the January-September 2025 period increased 1.33 trillion yuan (down 13.6 percent year-on-year).
- Corporate and institutional loans:
- Corporate and institutional loans increased 1.22 trillion yuan in September 2025 (down 18.1 percent year-on-year).
- Corporate and institutional loans increased 13.44 trillion yuan in the January-September 2025 period (down 0.1 percent year-on-year).
- Short-term corporate loans increased 710 billion yuan in September 2025 (up 54.3 percent year-on-year).
- Short-term corporate loans in the January-September 2025 period increased 4.53 trillion yuan (up 60.1 percent year-on-year).
- Medium- and long-term corporate loans in September 2025 increased 910 billion yuan (down 5.2 percent year-on-year).
- Medium- and long-term corporate loans in the January-September 2025 period increased 8.29 trillion yuan (down 14.2 percent year-on-year).
RMB deposits
- RMB deposits increased 2.21 trillion yuan in September 2025, down 40.9 percent year-on-year.
- RMB deposits increased 22.71 trillion yuan in the January-September 2025 period, up 36.7 percent year-on-year.
- Household deposits:
- Household deposits increased 2.96 trillion yuan in September 2025, up 34.5 percent year-on-year.
- Household deposits increased 12.73 trillion yuan in the January-September 2025 period, up 7.4 percent year-on-year.
- Non-financial corporate deposits:
- Non-financial corporate deposits increased 919.4 billion yuan in September 2025, up 19.4 percent year-on-year.
- Non-financial corporate deposits increased 1.53 trillion yuan in the January-September 2025 period, compared with a negative 211 million yuan decline last year.
- Fiscal deposits:
- Fiscal deposits decreased 840 billion yuan in September 2025, compared with a decrease of 235.8 billion yuan last year.
- Fiscal deposits increased 1.37 trillion yuan in the January-September 2025 period, up 89.1 percent year-on-year.
September CPI and PPI data
Oct. 15
The National Bureau of Statistics released China’s CPI and PPI data for September 2025.
- The CPI fell 0.3 percent year-on-year in September.
- For the January-September 2025 period, the CPI decreased 0.1 percent on average compared with the same period in 2024.
- The PPI for industrial products fell 2.3 percent year-on-year in September, and the purchase prices of industrial producers dropped 3.1 percent during the same period.
- The PPI fell 2.8 percent on average during the January-September 2025 period, and the purchase prices of industrial producers decreased 3.2 percent compared with the same period last year.
Our take
Beijing’s official data for September and the first nine months of 2025 reveals a bifurcated Chinese economy: headline social financing and money supply metrics suggest recovery, yet underlying demand weakness and deflation persist. Coordinated fiscal-monetary interventions may have delivered short-term market stability, but at the expense of long-term financial discipline and price discovery.
1. Credit, deposits, and price indicators suggest that consumption and investment demand remains weak in China, and Beijing’s monetary policies have yet to stimulate the economy or break the deflationary cycle.
On the consumption side, the CPI continues to decline, showing that household purchasing power has not recovered. According to the National Bureau of Statistics, the CPI in September fell 0.3 percent year-on-year, and the average for January–September also edged down by 0.1 percent. This indicates that price declines stem more from the interplay of weak demand and supply overhang. Also, persistent negative consumer price growth suppresses current spending expectations (anticipating lower prices), forming a negative feedback loop that weakens monetary policy transmission.
From the credit side, household short-term loans have contracted sharply, and overall RMB loan growth has slowed. PBoC data shows that new RMB loans in the January-September 2025 period totaled 14.75 trillion yuan, down from 16.02 trillion in the same period of 2024 (down 7.9 percent year-on-year), with September alone adding just 1.29 trillion, below last year’s level. Notably, household short-term loans shifted from net growth in 2024 to net contraction in 2025, with a net reduction of about 230.4 billion yuan in January–September 2025 versus net growth of 402.4 billion in 2024. This signals deleveraging or demand contraction in short-term consumer credit and revolving borrowing, indicating fragile consumption recovery.
From the deposit side, deposits are accumulating but not flowing to consumption or investment. RMB deposits rose 22.71 trillion yuan (up 36.7 percent year-on-year) in the January-September 2025 period, but these funds have not adequately shifted to consumption or long-term productive investment. Monthly net inflows to household and corporate deposits reflect precautionary saving or cash hoarding amid uncertainty, rather than immediate spending or investment. Meanwhile, sharp monthly shifts in government and non-bank deposits highlight strong fiscal/institutional reallocation between government and financial entities. Overall, rising deposits resemble liquidity hoarding rather than evidence of demand recovery.
In summary, the three points above indicate that while the central bank provides ample liquidity, weak real demand has impeded the money multiplier and credit transmission. This prevents Beijing’s monetary policy from stimulating the economy and reversing deflation.
2. China’s overall economic growth is primarily supported by government borrowing, and in particular, facilitated through indirect central bank bond purchases.
First, the structure of social financing shows a clear dominance of government debt contributions. Of the 30.09 trillion yuan in social financing growth from January to September 2025, net government bond financing reached 11.46 trillion yuan, accounting for an exceptionally high proportion. Net issuance of government bonds increased significantly by approximately 4.28 trillion yuan compared to the same period last year, equivalent to 96.8 percent of the 4.42 trillion yuan additional increment in social financing in 2024. In other words, social financing expansion is mainly driven by government debt rollover and new issuance, rather than spontaneous investment or consumption growth from the private sector. According to PRC Ministry of Finance data, local government bonds issued in the first eight months totaled 7.68 trillion yuan, of which 49.4 percent were refinancing bonds. Even though 50.6 percent of the local government bonds were new “special bonds,” past data show that over 60 percent of those were invested in low-efficiency projects. This debt structure makes the headline numbers look strong, but offers limited multiplier effects on actual GDP and employment recovery.
Second, financing for the private sector and private enterprises remains persistently subdued. The corporate bond market showed sharp net financing contraction in September (only 100 billion yuan, far below 833 billion yuan in 2024), with cumulative medium- and long-term corporate loans also falling short of last year. This indicates insufficient support from market-based and direct financing channels for enterprises, particularly private and micro-to-small firms. Household loans contracted dramatically (down 43.3 percent cumulative in the January–September 2025 period), with short-term household borrowing shifting from net growth in 2024 to net reduction in 2025. This signals structural deleveraging or mortgage slowdowns, alongside weak consumer credit. When private investment and long-term corporate financing are constrained, even government debt issuance may only temporarily buoy surface economic figures rather than ignite sustainable growth momentum.
Furthermore, the coexistence of weak loan growth and substantial deposit accumulation indicates funds are circulating idly within the financial system, being absorbed into the bond market and banks’ asset-liability sides. Government bond issuance is absorbed by banks and institutions, and if subsequently taken up by the central bank via tools (such as outright reverse repos), it forms a closed loop of “government borrowing → financial institutions absorption → central bank injection.” This stabilizes the bond market and sentiment in the short term but leads to long-term bank asset dependency on government debt and accumulating duration risks. Official data already reflects this flow and structural shift in funds.
