As the Economy Slides, Chinese Regime Seek ‘Stability’

A worker pusher a cart in front of a sign showing Evergrande Group's China operation at a housing complex by the property developer in Beijing on Dec. 8, 2021. (Noel Celis/AFP via Getty Images)
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By Edward Cheng

News Analysis

The Chinese Communist Party’s annual Central Economic Work Conference, where top officials discuss economic priorities for the next year, concluded on Dec. 10. The meeting was keenly anticipated as China faces significant economic headwinds going into 2022.

The phrase “stability” emerged as the key theme of this meeting, with the word being mentioned 25 times, according to Chinese state-run media. This comes at a time when the Chinese economy is facing significant economic challenges from the ongoing pandemic, supply chain bottlenecks, an energy crisis, and a fragile property sector.

The key takeaway from the meeting is that “stabilizing growth is the bottom line, and for the next 12 months growth will be on top of the Communist Party’s agenda,” Bruce Pang, head of macro-economy and strategy research at China Renaissance Securities Hong Kong Ltd, told Bloomberg.

Focus on Growth

After spending the last few years focused on curbing what the authorities saw as financial excesses and reducing debt, the concern has now shifted to maintaining economic growth.

“Priority is shifting from regulatory tightening to supporting economic growth.” said Larry Hu and Xinyu Ji said in a Macquarie report.

Regulatory aims such as stabilizing debt-to-GDP and curbing monopoly power were removed from this year’s statement, possibly signaling a shift away from deleveraging and anti-monopoly campaigns. However, broader strategies and goals such as ‘”prevent[ing] barbaric growth in capital” by implementing a “traffic light” system for capital were included in the statement released by official state media Xinhua .

“Last year was a whole paragraph about the disorderly expansion of capital and tech companies … This year it’s briefer and there’s very little about large tech companies. That’s good news for them,” Chen Long, an economist at Beijing-based consultancy Plenum, told Bloomberg.

The statement makes clear that the most pressing concern to authorities is the slowing economy.

“[The] economy faces the triple forces of contracting demand, a supply shock, and weakening expectations,” reads the official statement.

China’s economic woes have been building of late, with the economy slowing to 4.9 percent in the third quarter of 2021 on the back of these three forces. This slowdown has now clearly placed increasing pressure on authorities, who still have the goal of doubling GDP by 2035.

No specific policies were detailed in the meeting, but it appears proactive and targeted fiscal policy will be the tool of choice to achieve growth stabilization, while monetary policy will be “flexible and appropriate.” These policies will become more clear early next year when the authorities announce their growth targets.

The statement comes only days after the Chinese central bank added stimulus to the economy by cutting reserve requirements by 0.5 percentage points, injecting around $188 billion into the financial system.

Real Estate

As the Chinese property market faces lower consumer sentiment along with a string of property developers running into debt issues (most notably Evergrande), Chinese authorities continued to emphasize the need to curb any unwanted speculation and leverage in this sector.

The phrase “houses are for living, not for speculation” appears in the Xinhua readout of the meeting. This term has been used to justify the regulation that has squeezed the property sector. Its continued appearance could signal continuation in these policies, which has forced the property development sector into a painful structural change in their business model.

Additional language on “support[ing] the commercial housing market to better meet the reasonable housing needs of buyers” was included. But it is unclear if this might lead to any reprieve for property developers who face a tough deleveraging campaign, which brought many property developers to the brink of collapse and sapped the confidence out of consumers.

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