SinoInsight 1
The CCP held the Central Economic Work Conference in Beijing from Dec. 10 to Dec. 12. All seven members of the Politburo Standing Committee were in attendance and both Xi Jinping and Li Keqiang gave speeches about economic work in 2019, the current economic situation in China and key tasks for 2020.
Key attendees of the Central Economic Work Conference include members of the Politburo, the secretary of the Central Secretariat, and the heads of the National People’s Congress Standing Committee, the State Council, the People’s Supreme Court, the People’s Supreme Procuratorate, the Chinese People’s Political Consultative Conference, and the Central Military Commission. Other attendees include local Party and government principal officials from the provinces, autonomous regions, and municipalities directly under Party Central; principal officials from the Xinjiang Production and Construction Corps; key officials from central Party and state government organs; leading persons-in-charge of financial institutions and some state-owned enterprises; as well as relevant military officials.
A focus of the Conference was maintaining “economic stability” amid economic slowdown, a complex environment, and growing domestic and global risks. All government departments were called on to maintain “six stabilities” (employment, finance, foreign trade, foreign and domestic investments, job expectations), guard against financial risks, increase opening-up, etc.
OUR TAKE
1. The Central Economic Work Conference’s focus on maintaining economic stability indicates that the CCP elite knows that China’s economic situation is dire and needs to get the various organs and local governments on the same page in addressing the various economic and financial risks. Maintaining economic stability entails both regular economic work and the deployment of the CCP regime’s brutal “stability maintenance” apparatus to cope with financial and economic crisis.
2. Before 2017, only the PRC premier, vice premiers, and other key officials involved in economic work would attend national work conferences on financial and economic matters. The list of key attendees changed after the Xi leadership began financial deleveraging work in the second half of 2017. In July 2017, the National Financial Work Conference was attended by Xi Jinping, the usual bunch of economic and financial work officials, and for the first time, officials from the political and legal affairs apparatus, the Central Military Commission, the military, as well as the People’s Armed Police. Since then, officials responsible for “stability maintenance” have attended key financial and economic conferences, including the recently concluded Central Economic Work Conference.
The fact that CCP “stability maintenance” officials need to be kept “in the know” on China’s economic and financial situation indicates that the CCP elite is taking financial and economic risks very seriously and believe that they must involve “stability maintenance” officials in planning financial and economic work. Put another way, the CCP elite believes that China’s economic and financial situation is so critical that social unrest and chaos would more likely than not break out, and hence the need for the regime’s “stability maintenance” apparatus to be prepared to carry out suppression work.
Thus, we can infer from the inclusion of “stability maintenance” officials at financial and economic work conferences after 2017 that China’s economic situation is far more dire than what official economic data shows.
3. On Nov. 11, the People’s Bank of China issued a financial stability report which noted that 6 trillion yuan worth of corporate bonds will mature in 2019 and there is a high risk of defaults. On Dec. 5, the PRC finance ministry issued data which showed that 2 trillion yuan of government bonds will mature at the end of 2019.
As of Dec. 4, 2019, there were 181 defaults on the credit bond market, according to mainland media reports citing financial data provider Wind. In comparison, there were 150 defaults over the same period in 2018; defaults were up in 2019 by 20.67 percent.
On Dec. 6, the banking bureau of Taiwan’s Financial Supervisory Commission confirmed that 11 Taiwanese banks have a combined exposure of $400 million from a syndicated loan to a unit of the state-owned China Energy Reserve and Chemicals Group Co. in Shanghai that could become non-performing. The Shanghai-based company has made no payments on the loan’s interest or principal since October, and still owes the 11 banks 90 percent of the total loan amount.
On Dec. 11, Bloomberg News reported that Chinese state-owned company Tewoo Group Corp. carried out an unprecedented debt restructuring ahead of $300 million dollar bond maturity on Dec. 16. Tewoo is owned by the Tianjin government and ranked 132 in 2018’s Fortune Global 500 list. Tewoo’s failure in the dollar bond market is the biggest for a SOE since the collapse of Guangdong International Trust and Investment Corp. in 1998, and indicates that Beijing has limited capacity to bail out weaker SOEs.
The recent debt defaults by Chinese SOEs and private enterprises are evidence that China’s economic problems are very severe and the CCP regime lacks the capacity to carry out adequate rescue operations. China’s economic woes could be an important reason why the CCP made major concessions to the U.S. in the “phase one” trade deal.
