Xi Jinping bets on China’s economic turmoil and pushes for tough reforms

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Chinese President Xi Jinping seems to be entering an economic storm of his own making, as one of China’s largest developers is teetering on the brink of bankruptcy, and manufacturers are struggling across the country to cope with power shortages.

But apart from minor corrections, analysts and government advisers expect Xi Jinping to use what he calls a “window of opportunity” to advance difficult structural reforms.

If successful, this will be the latest in a series of bold political gambles—from the removal of the president’s term limit to his pursuit of “Common Prosperity” -This makes him the most feared leader in China since Mao Zedong. This also allowed him to usher in an unprecedented third term at the 20th Congress of the Communist Party of China at the end of next year.

Shared prosperity is particularly dangerous because Xi Jinping’s determination to control housing prices and reduce income inequality may do more harm than good to the world’s second largest economy.

“Xi Jinping is warming up for the conference,” said Gao Heng, an expert on China and a law professor at Singapore Management University. “He wants people to remember him in many things, especially to achieve common prosperity. [His predecessors] It can put China on the express train with the fastest economic development, but it has little effect on common prosperity. “

Next week, the National Bureau of Statistics will release estimates of important economic indicators such as economic growth in the third quarter.The data will provide the best explanation Evergrande crisisAs China’s second-largest developer, debt exceeds 300 billion U.S. dollars, soaring coal prices and strict new environmental targets have caused power shortages.

Therefore, many forecasters are lowering their annual economic forecasts for the Chinese economy. But most people still estimate that the annual economic output will easily exceed the official government figures. 6% growth target More than 2020.

At the April Politburo meeting, Xi Jinping stated that the relatively strong recovery of the Chinese economy from the Covid-19 pandemic provides a “window of opportunity” to reduce financial risks, especially in debt-laden industries such as real estate. This is also an opportunity to achieve ambitious environmental goals, such as peak carbon emissions by 2030 and carbon neutrality by 2060.

According to Rosealea Yao, an analyst at Longzhou Economics in Beijing, as of August, China’s annual real estate sales are expected to reach 1.8 billion square meters, while the average annual sales from 2017 to 2019 were 1.7 billion square meters. Sales and prices threaten Xi Jinping’s common prosperity agenda, and when Evergrande began to default on retail investors and bondholders in September, officials were more willing to take risks.

However, many analysts warned that the impact of Evergrande’s debt crisis on China’s economy may be much greater than what Xi Jinping and his economic advisers realized, because they tried to persuade investors that Beijing would not give up on an estimate of what would be caused. Affected industries’ efforts to carry out disciplinary actions. It accounts for 30% of the total output.

The yields on bonds issued by other highly leveraged Chinese real estate developers are rising, and the demand for additional debt may collapse, potentially sucking them into the vortex of Evergrande.

“They want to eliminate moral hazard by intimidating the market,” said Michael Pettis, an expert on China’s financial system at Peking University. “Hengda is at risk of losing control because people are changing their behavior to protect themselves. This is perfectly reasonable. But when people do this systematically, it really reinforces itself and makes things worse.”

Wuhan Evergrande City

Analysts warn that the impact of Evergrande’s debt crisis on China’s economy may be much greater than Beijing realizes © Getty

An unnamed Chinese government policy adviser said that Evergrande recently sold assets Raise cash With its total liabilities estimated at US$305 billion, these are minor issues. If it is pushed too fast and too fast, the group may be forced to sell its huge land bank.

“The big sale of Evergrande’s land bank may depress land prices in many parts of the country, which will be quite scary,” the consultant said. He added that in this case, “the only viable solution may be to gradually nationalize the entire real estate industry.”

The power shortage that has spread in China in recent weeks is an example of how well-intentioned policies can have unintended consequences.

Some of these consequences stem from reduced production in provinces struggling to meet strict year-end energy efficiency targets. Power plants in other regions are affected by coal shortages, soaring coal costs, and electricity price ceilings, which means they can only generate electricity at a loss.on Monday China Coal Futures It reached a record high after being affected by floods in a large coal-producing area.

An owner of a plastics factory in eastern Jiangsu Province, who asked not to be named, said that he was only notified at the last minute that the power went out in mid-September. “The government has no clear long-term plan,” he said. “Businesses need to plan ahead.”

Later last week, the Xi Jinping government tried to pass Speed ​​up coal production And allow plants to charge more electricity bills. But these short-term concessions are unlikely to prevent Beijing from pursuing its ambitious long-term environmental goals.

“We understand and support the government’s environmental protection policy,” the factory owner said. “The government sees a bigger picture than us, and has a carbon reduction goal to achieve. But cutting our connection so suddenly would cause a lot of pain.”

Supplementary report by Liu Xinning in Beijing

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