Xi manoeuvres desperately to get slowing economy back on track
China’s leaders are expected to search for ways to mend the country’s fractured property market, create jobs for millions of unemployed youths and spur faster growth in a meeting that reportedly began Monday in Beijing.
The National Financial Work Conference, usually held twice a decade, is expected to further fortify leader Xi Jinping’s control of the country’s $61 trillion financial sector. It follows the announcement last week of plans to issue 1 trillion yuan ($330 billion) in bonds for infrastructure projects and disaster prevention.
By dipping deeper into deficit, the government is looking to counter a sharp slowdown in housing construction. Economists say the challenge lies in finding ways to ensure sustainable, balanced growth while unwinding massive debt held by real estate developers, local governments and regional banks.
The gathering, held behind closed doors and without any formal public announcement Monday, will tackle such long-term reforms, Takehiko Nakao, former president of the Asian Development Bank, said in an interview with China’s CGTN network while attending an international financial conference in southern China’s Guangzhou.
“Overall, the financial sector in China has made progress but at this moment they face challenges,” said Nakao. While longer-term reforms are likely on the agenda, he suggested that more immediate problems such as the real estate sector are a priority.
The last financial work conference was held in 2017, but disruptions from the COVID-19 pandemic caused it to be postponed in 2022.
The sudden death last week of former Premier Li Keqiang, an English-speaking economist who represented a generation of politicians schooled during a time of greater openness to liberal Western ideas, was seen by many observers to symbolize the shift toward stronger party controls.
Li was side-lined in a leadership shakeup last year. Since then, Xi has conducted a thorough reshuffle of economic and financial leadership positions and set up an entity called the Central Financial Commission, seen as a move to coopt and weaken other regulators like the China Securities Regulatory Commission.
Last week, Xi reportedly visited the central bank, or People’s Bank of China, a rare step that underscores the party’s consolidation of controls over markets and financial institutions.
A newly appointed finance minister, Lan Fo’an, will be taking on a substantial challenge given the tide of debt that has engulfed many local governments as revenues from land concessions, a major source of funding, have dried up with a property downturn.
Although the economy, the world’s second largest, expanded at a 4.9% annual pace in the first nine months of the year, close to the government’s target of about 5%, the International Monetary Fund has warned that debts of local governments have risen to hazardous levels, raising the level of total government debt to nearly 150% of the country’s GDP.
While retail sales and other services have revived since China ended its stringent anti-virus controls late last year, the jobless rate for young Chinese topped 20% earlier this year and demand has yet to fully bounce back.
Dipping deeper into deficit by issuing bonds will help counter the steep slowdown in housing construction as Chinese hold onto their savings while developers struggle to deliver new homes they’ve already sold.
As officials convened their meetings in Beijing, a court in Hong Kong adjourned until Dec. 4 a winding-up hearing for property developer China Evergrande, which got caught short when regulators began cracking down on excessive borrowing two years ago. Fears of a possible Evergrande default in 2021 rattled global markets, but they eased after the central bank said its problems were contained and Beijing would keep credit markets functioning.
With more than $300 billion in liabilities, Evergrande is the biggest of dozens of developers that have defaulted. Its efforts to restructure overseas debts have been hindered by the detention of its chairman, Hui Ka Yan, in an investigation into unspecified suspected crimes.
Country Garden, another major developer, failed last week to meet a deadline to pay interest on a dollar bond. The company, based in the southern Chinese city of Foshan, had about $187 billion in liabilities as of June.
The government has adopted various measures to try to contain fallout from the property crisis. It has eased controls on housing purchases and reduced the amount of funds banks must hold as reserves. It has adopted measures to support private industries, which provide the lion’s share of jobs in China. It has also promised tax relief for small businesses and rural families.
