SinoInsight 1
On Sept. 25, New World Development executive vice-chairman Adrian Cheng Chi-kong announced that the company will donate 3 million square feet of its farmland reserves to the Hong Kong government and to non-profit organizations for the building of public homes. New World will also donate three pieces of land totaling 28,000 square feet to Light Be, a non-profit specialist in social housing and tenant development which New World has been working with, for the building of 100 homes each measuring 300 square feet.
Cheng said that New World’s donation has nothing to do with a “Lands Resumption Ordinance” that is being pushed by pro-Beijing political parties which will let the Hong Kong government forcibly take back land from private owners to build public housing.
OUR TAKE
1. New World’s farmland donation corroborates our earlier analysis of the CCP’s strategies for handling the Hong Kong situation (see here and here):
- In a move out of the Thirty-six Stratagems (‘Sacrifice the plum tree to preserve the peach tree’), the CCP is planning to sacrifice Hong Kong’s political and business elite to pacify the protesters and eventually restore and tighten its control over the city.
- The CCP has begun designating Hong Kong’s property developers as a sort of new “landlord” class and is trying to redirect the Hong Kong people’s ire away from the PRC and towards the local property elites.
- “While the CCP sought to cultivate good relations with Hong Kong’s elites earlier on as a means to strengthen their control over the city, they would have no qualms about sacrificing them (the plum tree) now to preserve the CCP regime’s survival (the peach tree).”
2. Property developers in Hong Kong could have recognized that they are in the CCP’s crosshairs and are now donating land to ease social contradictions and seize the initiative on the land shortage problem in Hong Kong.
Other Hong Kong property developers could take a leaf out of New World’s land donation move. The developers do stand to gain somewhat from their generosity: If they donate land in less convenient locations and those plots are redeveloped with government investment and infrastructure building, then the land price in the areas which they own bordering the donated land will go up.
2. If Hong Kong property developers think that they can avoid being sacrificed by the CCP by paying up a “protection fee” through land donations, then they are sorely mistaken. The CCP will sacrifice whoever and whatever it needs to survive and dominate, and will not hesitate to go after the property elites in Hong Kong if it means preserving the regime.
Based on our assessment, the CCP faces a steep uphill battle to calm down the situation in Hong Kong, particularly because it has lost the hearts and minds of the Hong Kong people. Thus, the CCP will more likely than not stick with its strategy of blaming Hong Kong’s political and business elites for the city’s long-standing economic and social problems to deflect popular criticism of its rule.
SinoInsight 2
In the evening of Sept. 25, the Industrial and Commercial Bank of China and Agricultural Bank of China separately announced that they were transferring 10 percent of their shares held by China’s Ministry of Finance (MoF) to the National Council for Social Security Fund (NSSF).
OUR TAKE
1. This is not the first time that government-linked corporations have been supporting the PRC’s social security fund. In November 2017, the PRC government released a document which required medium to large enterprises and financial institutions at the local and Party Central level to transfer 10 percent of their shares to the NSSF. The share transfers are almost certainly intended to calm public fears and anger about a perceived lack of pension funds in the government coffers.
Several signs have emerged in recent years which indicate that the NSSF is facing severe financial difficulties:
- In 2016, the MoF released data which indicated that the NSSF was 605.8 billion yuan in the red.
- In December 2017, the Ministry of Human Resources and Social Security released data which revealed deficits in the pension funds of seven provinces. Of the seven provinces, Heilongjiang was in the worst situation with a pension fund was 23.2 billion yuan in the red. Meanwhile, 13 regional pension funds could only issue less than a year’s worth of pensions.
- Starting in 2018, the PRC government began piloting a scheme where some state-owned enterprises would transfer their shares to the NSSF.
- On April 10, 2019, the World Social Security Fund Research Center of the Chinese Academy of Sciences released a report on the state of the PRC’s social security system for the years 2019 to 2050 which predicted that the government pension fund will be completely exhausted by 2035. This report caused panic amongst Chinese born in the 1980s because its findings meant that they would not be able to collect a pension when they become eligible.
- In July 2019, the PRC State Council passed a resolution to “comprehensively promote” the transfer of some SOE capital to the NSSF.
- On Sept. 18, 2019, the government of Wuchuan City, Guangdong Province, was not able to issue pensions on time. This inspired large numbers of pensioners to surround the city government buildings in protest.
2. We have observed that the Sino-U.S. trade war, which began in 2018, has accelerated the worsening of China’s economy, intensified social contradictions, and forced the CCP to tighten its control over Chinese society.
The CCP’s policies to mitigate the impact of the trade war have not helped enterprises or employees. While the CCP has increased personal tax exemptions, it has also strengthened the collection of social security payments. Enterprises are finding it increasingly difficult to operate under the new policies; already, changes to how the MoF collects social security that were rolled out in January this year have triggered a wave of business closures. Eventually, the PRC government had to order local governments to stop increasing the social security burden for enterprises.
3. We believe that the anti-extradition bill protests in Hong Kong are part of the reason why the PRC government is speeding up the transfer of shares from SOEs to the NSSF. The CCP does not want mass protests to break out on the mainland over a shortage of pension funds; already, mainland Chinese are struggling to cope with the impact of a worsening economy and skyrocketing food prices.
4. In considering the CCP factional struggle, Xi Jinping would be weakening his rivals in the SOEs by getting the SOEs to transfer 10 percent of their shares to support the state pension fund.
5. We believe that the PRC’s pension system is another ticking “time bomb” that will endanger the CCP regime when it blows up.
For starters, the pension system is inherently unfair because it excludes a segment of the population (more than a fifth of China’s rural population are not included in the pension system) while benefiting only a portion of the civil service. This imbalance will likely result in an escalation of social contradictions as China’s economy deteriorates further.
Also, the CCP can expect those entitled to a pension to protest when it increasingly cannot guarantee a payout to them.
