Four Major Fears: Xi Jinping Wields Political Scalpel to “Fix” the Economy

Key officials under Xi Jinping frequently disappear. (Illustration by People News)

People News — Xi Jinping once drew a red line for reform: “What should be reformed, what can be reformed, we will resolutely reform; what should not be reformed, what cannot be reformed, we will resolutely not reform.” Faced with an economy on the brink, the CCP refuses to acknowledge that the economic decline is due to structural and systemic issues. Instead, it emphasizes the need for counter-cyclical adjustments and has introduced a series of major initiatives since September, aiming to escape economic hardships and deadlocks.

At the beginning of October, Finance Minister Lan Fu’an hinted at a massive fiscal stimulus from the CCP but did not disclose the scale or specifics of this round of fiscal stimulus. Those who hold hopes and visions for the CCP’s economy are eagerly waiting, feeling that the Party will take action to save the market. Consequently, there are anxious expectations around the 12th session of the National People’s Congress Standing Committee in Beijing, from November 4 to 8.

On October 29, Reuters exclusively revealed details of the fiscal boost that the CCP is about to unleash. Reuters reports that China (the CCP) is considering approving an issuance of over 10 trillion yuan in additional debt in the coming years to revitalize the fragile economy. Where will the 10 trillion yuan raised through these bonds go?

Among this, 6 trillion will go toward a comprehensive package to resolve local government debt risks, and 4 trillion will be allocated to the real estate sector. Citing informed sources within the CCP, Reuters notes that an additional 1 trillion yuan might be used to replenish bank capital. Additionally, Reuters dramatically mentioned that if Trump takes office, the stimulus scale will further increase, with another 4 trillion yuan in national debt issuance aimed at offsetting losses from U.S. tariff measures.

Look at this bill—does it have anything to do with people’s livelihoods? The bailout of local government debt is about covering for local officials, pouring funds into real estate is intended to prop up housing prices, continuing to deceive and exploit people, and bank capital replenishment is out of fear of systemic financial collapse. The last part reflects Xi Jinping’s and the CCP’s Trump phobia and tariff phobia, compounded by the previous three major fears: fear of local government debt defaults, fear of real estate collapse, and fear of financial crisis. These four fears are the fundamental reasons behind the CCP’s recent economic shift and increased fiscal loosening.

The CCP continues to oppress its people, extracting every last bit of value from them while digging a bottomless pit for itself. The four major fears mentioned above are effectively graves dug by the CCP, and Zhongnanhai is deeply afraid that the CCP’s regime is unsustainable.

The local debt issue has already threatened the normal operations of local governments. At the 2024 Financial Street Forum Annual Meeting, Li Jianjun, a standing committee member of the Party committee and vice president of the Central University of Finance and Economics, revealed that as of June 2024, total local debt was about 100 trillion yuan, including 42.23 trillion in local government bond balances and 57.16 trillion in interest-bearing urban investment debts. The consequence of this debt burden is salary cuts for civil servants and officials lying low. Furthermore, on October 25, Bloomberg reported that 6 trillion yuan worth of urban investment non-standard financing projects are gradually going into default, causing massive losses to investors.

The 6 trillion yuan debt bailout funds disclosed by Reuters are spread over three years, with only 2 trillion yuan allocated annually, potentially just enough to pay interest. This approach doesn’t address the core of the local debt issue but merely replaces short-term hidden urban investment debt with long-term debt on paper, easing the pain for local governments without solving the issue of economic growth deceleration.

The 4 trillion yuan allocated to real estate is also spread over five years, with just 800 billion yuan annually, intended to repurchase idle land from cash-strapped developers and help reduce the large inventory of unsold properties. In 2024, the target is 3.96 million homes covering 396 million square meters, requiring approximately 3.9 trillion yuan if priced at an average of 10,000 yuan per square meter. After accounting for 1.4 trillion yuan from whitelist project financing, 300 billion yuan in new loans, and 600 billion yuan for expanding the whitelist and financing, the gap for housing delivery funds still stands at 1.6 trillion yuan. Even the 800 billion yuan allocated for ensuring housing delivery will only cover half of this shortfall. With China’s enormous real estate sector, affecting dozens of upstream and downstream industries, this 4 trillion yuan spread over five years is nothing more than a drop in the bucket.

As for the financial and banking sectors, salary cuts for senior bank executives, mass layoffs, and defaults in small and medium-sized banks have become the norm. Due to the CCP’s constant interest rate cuts, commercial banks’ net interest margins fell from 2.08% at the end of 2021 to 1.54% by mid-2024. The net interest margins of major banks such as ICBC, Agricultural Bank, Construction Bank, Bank of China, Postal Savings Bank, and Bank of Communications dropped year-over-year by 24 basis points, 17 basis points, 23 basis points, 23 basis points, 16 basis points, and 2 basis points, respectively. Replenishing bank capital cannot genuinely resolve the issue of declining net interest margins, much like a person with sepsis cannot be cured by a simple blood transfusion. On October 30, Li Ka-shing once again sold shares of Postal Savings Bank of China’s H-shares, marking his fourth reduction this month, with a cumulative reduction exceeding 157 million shares.

With less than a week until the U.S. election, if Trump wins, tariffs are expected to reach at least 60%, which would only exacerbate the CCP’s struggles. U.S. Commerce Department data from February this year showed that the U.S.-China trade deficit for 2023 was $279.4 billion, the lowest since 2010. U.S. imports from China totaled $427.2 billion in 2023, a 20% decrease from 2022. The Biden administration inherited Trump’s tariff policy on China, with rates between 10% and 25%. If these rise to 60%, or even 150%-200%, China’s exports would be devastated. With weak foreign and domestic demand, the CCP’s economic “zero day” is approaching. But Trump’s goal in launching a trade war was to push the CCP into structural reform, including cutting export subsidies. The CCP’s 4 trillion yuan plan to counter Trump’s trade war will likely increase export subsidies, further prompting the U.S. to increase tariffs, thereby escalating the trade war.

Through Reuters’ exclusive disclosure of the largest fiscal stimulus plan in CCP history, it’s clear to outsiders that the CCP’s increased debt issuance is aimed at political-economic projects intended to stabilize the regime, unrelated to boosting domestic demand or solving people’s livelihood and income issues.

In August, youth unemployment in China reached 18.8%. From June 2023 to June this year, as much as $254 billion fled China. From January to August 2024, actual foreign investment was 580.19 billion yuan, a year-over-year decline of 31.5%. Currently, about 963 million people have a monthly income below 2,000 yuan, with household income accounting for only 38% of GDP. Private enterprises face wave after wave of layoffs and closures. To address these fundamental economic issues, simple stimulants and stimulus methods will not work. The CCP must implement structural economic reforms and legal system building, weaken and abandon outdated policies, end its nationwide centralized economic model, vigorously develop private enterprises, respect private property, and adhere to market economic principles. For the CCP, however, this would be as futile as bargaining with a tiger.

A recent Bloomberg article disclosed that economists at Morgan Stanley introduced a new metric system in September to observe, measure, and forecast fluctuations in the Chinese economy and policy trends. The gist is that Xi Jinping’s economic stimulus measures often do not rely on economic indicators or data but rather on a “social dynamic perception coefficient,” which tracks the number and scale of collective social incidents. For instance, in late 2022, Xi abruptly adjusted policies out of concern over the youth-led “white paper” protests.

Morgan Stanley economists noted that social incidents in China have not yet reached the level of public resentment seen during the 2022 “dynamic zero” policy, so this round of stimulus cannot be “epic” but only incremental.

Overseas analysts seem to have nearly grasped Xi Jinping’s mindset: each time, he wields a political scalpel to “fix” the economy’s wounds, but this only results in the next crisis—a bigger crisis that is on the way.

(People News, first published)