China’s central bank cut the prime loan rate on Monday in a bid to shore up the slowing economy, and financial authorities pledged credit support for small and medium-sized businesses and innovative technologies.
The moves come amid concerns that President Xi Jinping's administration lacks technocrats capable of overseeing a recovery. The economy has struggled to rebound following the lifting of COVID-19 measures in December 2022, despite X''s attempts to manage a consumption-led recovery.
"The country's economic recovery has been a wave-like development and a tortuous process," state news agency Xinhua quoted a statement from the People's Bank of China as saying.
The statement – released Sunday following a meeting between the bank, the National Financial Regulatory Administration and the China Securities Regulatory Commission – called for "efforts to push for the continuous improvement of economic performance, endogenous driving force and social expectations, and continuously defusing risks and hidden dangers," the report said.
"Financial support for the real economy should be strong in intensity, steady in pace, sound in structure and sustainable in prices," it said.
Analysts were doubtful that the steps would be effective.
"It said they would be supporting micro, small and medium-sized enterprises, but they didn't say that going in this direction would resolve unemployment," U.S.-based commentator Zheng Xuguang told RFA Mandarin.
"The main sectors targeted by the bank's previous lending policies are still a minefield, so they are looking for new directions."
Zheng said there aren't many options available in the current economy, especially as the central government in Beijing has ruled out bailing out cash-strapped local governments, whose finances are deeply bound up with local property markets.
"If they invest in local governments or property developers then that would be a bailout," Zheng said. "It's not really the way to go about [stimulating] true economic growth," he said.
On Monday, the bank said it lowered its one-year benchmark lending rate by 10 basis points to 3.45% and keeped the five-year rate unchanged at 4.2% amid broader concerns about a rapidly weakening currency.
Weak data
The move comes amid flagging indicators of consumption, exports and investment, including the collapse of the property sector – which amounts for a quarter of Chinese GDP – U.S. restrictions on technology exports and a massive slow-down in foreign investment.
The three top financial institutions also plan to find ways to "prevent and defuse debt risks, while intensifying the mechanisms for risk monitoring, assessment, prevention and control" to prevent systemic risks, Xinhua said.
China's central bank has also pledged to keep liquidity reasonably ample and its policy "precise and forceful" to support the economic recovery, Reuters quoted its second-quarter monetary policy implementation report as saying.
However, there are concerns that those to whom Xi Jinping has entrusted the Chinese economic recovery aren't well qualified to deliver.
"Xi Jinping and his closest advisers do not know much about the economy," Lam, a senior fellow at Washington-based think tank The Jamestown Foundation, told Nikkei Asia in a recent interview. "After the 20th Party Congress in October ... most of the people he promoted are not technocrats.
"They know very little about international trade, international finance, etc. They are mostly party apparatchiks who specialize in ideology ... propaganda. Most of them do not speak English," Lam said, adding that the former head of the People's Bank of China, Yi Gang, had a PhD in economics from the University of Illinois, while his recently promoted successor Pan Gongsheng got his from China's Renmin University.
Xi's record on the economy has already prompted calls for a return to the foreign and economic policy of late supreme leader Deng Xiaoping.
The reform era ushered in by Deng after the fall of late supreme leader Chairman Mao Zedong saw people freed up to make money as fast as they liked, and the start of a burgeoning private sector and a decades of export-led economic growth, while political ideology and authoritarian rule took a back seat.
Worsening property crisis
Xi is widely seen to be moving in the opposite direction, cracking down on private sector wealth and power and boosting the state-owned economy while eroding the freedoms enjoyed by the country's middle classes.
Earlier this month, real estate developer Country Garden missed interest payments on U.S. dollar bonds, failing to pay US$22.5 million in interest due on debt securities with a total value of US$1 billion.
Last week, property developer China Evergrande filed for U.S. bankruptcy protection as part of one of the world's biggest debt restructurings, as anxiety grows over China's worsening property crisis and its impact on the weakening economy.
The developer collapsed under accumulated debts in late 2021, sending the global economy briefly into a spiral and leading to protests in China by would-be homeowners who claimed to have been defrauded on off-plan homes that were never built or completed.
Chang Ting-hwan, an associate professor of the Department of Finance at Taiwan's Jianxing University of Science and Technology, said Evergrande has filed for bankruptcy in the hope of negotiating interest-free or delayed repayment and to temporarily protect its assets in the United States.
Asked why the company didn't file for bankruptcy in China, Chang said: "Maybe the government doesn’t agree with it declaring bankruptcy just yet, because it may affect a great many creditors and there could be a riot, so they need to prepare first."
But analysts said they still don't expect a bailout for private property developers.
"There's no way that China is going to bail out real estate companies," U.S.-based commentator Ren Songlin told RFA Mandarin in a recent interview. "They're not going to get involved in such loss-making businesses."
"They can't just go handing money to Evergrande CEO Xu Jiayin," he said, adding that many of the big real-estate companies have ties to the families and associates of former ruling Chinese Communist Party leaders like Jiang Zemin and Hu Jintao, and that Xi Jinping is unlikely to care if they lose out.
"The question of whether or not to bail out Evergrande has never been on the table for Xi Jinping," Ren said. "As far as the Chinese Communist Party is concerned, it's a private enterprise, so why would they do that?"
‘Ghost towns’
Chang said other property companies – like Country Garden – are also in dire straits.
Most of Evergrande's developments are in major cities like Guangzhou, Shanghai and Shenzhen, making it easier to find people willing to take them over if the company declares bankruptcy, he said.
But that task will be much harder when it comes to the "ghost towns" created by Country Garden, he said.
"Country Garden builds towns in the middle of nowhere, and in out-of-the-way places," Chang said. "Even if housing prices fall, young people won't be interested in buying property there, which is even more worrying."
An employee who answered the phone at a branch of the state-run China Construction Bank in the southern province of Guangdong confirmed that lending policies have indeed been tightened for real estate companies.
"The real estate bubble has burst, so loans to real estate companies have been tightened, corporate loans have been enlarged, and enterprises are being encouraged to invigorate the economy," she said. "China's economy will definitely not be able to rely on real estate in future."
"[But if] small, medium and micro enterprises run into difficulty, the banks will try their best to grant them a loan," the employee said.
A journalist from the northern city of Tianjin who gave only the surname He for fear of reprisals said there is scant room for economic growth now that most of the economy is under state control.
"Commercial behaviors are being restricted by state power, so ruin is inevitable – there is no way to grow or develop," He said.
"State power lacks creative ability – it can only destroy things or consume. It can't create commercial activity."
Translated by Luisetta Mudie. Edited by Malcolm Foster.