Why Xi might not be backpedaling on Covid, property; Talk on the Hill of tougher China measures & Geospatial analysis shows PLA “strategically planned” India incursions -- China Boss News 11.21.22
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The Big Story in China Business
Why Xi might not be backpedaling on zero-Covid and the property crackdown
“Only weeks after consolidating power at the twice-a-decade party congress, President Xi Jinping has made a remarkable pivot, recalibrating the two policies that have suppressed China’s economic growth to the slowest pace since the Cultural Revolution,” Bloomberg’s Shuli Ren wrote last week.
Ren, Bloomberg [excerpt]:
The fast shift in narrative is impressive. The National Health Commission is now emphasizing a “scientific” approach to Covid control, saying at last weekend’s media briefing that tracking close contacts of close contacts and classifying cities into medium-risk areas no longer make sense. Under such scenarios, only about three out of 100,000 people test positive, according to a spokesperson. As of early November, zones accounting for more than half of China’s gross domestic product were designated as high- or medium-risk, thereby restricting personal freedom and business activities.
The pivot on property financing is equally jaw-dropping. The new 16-point plan that financial regulators and state-owned banks must heed reverses most of Beijing’s tightening measures that have been in place for over two years.
Reuters’ Pete Sweeney noted, however, that, while China’s new property market support measures are, up to now, “the most comprehensive attempt to stave off liquidity stress,” the enormity of the crisis is so vast that the “new credit is only half the amount of onshore and offshore debt estimated coming due in 2023.” Despite the help, “some 4.7 trillion yuan of outstanding debt, or 2.2% of total bank loans, may go bad given many developers have interest payments exceeding EBITDA,” he said.
Sweeney, Reuters:
Barring an utter abandonment of the red lines, which seems unlikely, only a major surge in buyer interest can sustainably revive such a mammoth market. That’s not impossible, but demographics argue against it. Chinese family formation is falling, and the country has empty apartments sufficient to house the population of Germany, Logan Wright of Rhodium Group estimates.
China Boss is fascinated by the possibility of a hard-headed, strong-man, like Chinese leader Xi Jinping, surrendering important linchpins of his political agenda. But as she tries to ascertain whether the Chairman has truly changed his mind on zero-Covid and his “Houses are for living-in, not speculation” credit caps that are currently sinking China’s property industry, she recalls that, above all, Xi needs to keep the local governments - with their hidden liabilities owed on investments related to infrastructure and real estate - from going belly-up while expensive Covid measures break their banks. After all, every leader is beholden to someone, or a bunch of someones, for staying power.
In China, where there is no alternative to local enforcement of zero-Covid, this is even more true. Researcher Zhengze Huang wrote about “China’s ‘Fragmented Authoritarianism’ During the COVID-19 Pandemic” and its posssible “long-term consequences” last June. In his article, he discussed “the party’s free swings between centralization and decentralization in public health policy.” The post-Mao era is awash with other examples of “fang” (loosening) and “shou” (tightening). The “fang-shou” cycle is well-known to Chinese intellectuals who describe it as the Party’s loosening of reigns to navigate challenging conditions before pulling back control. During his days as an up-and-coming bureaucrat, Xi would have seen how those cycles work at close range.
Last week, the Financial Times reported that China’s doctors had advised Beijing that the nation was “not ready” for a “Covid exit wave” on reopening. “Only 40 per cent of those over 80 have had three shots of a domestically made vaccine, the dosage required to gain high levels of protection against the Omicron variant,” it said.
FT:
The warning for China’s leader was delivered by a dozen health professionals — including frontline doctors and nurses and local government health officials — interviewed by the Financial Times this month, and echoed by international experts.
“The medical system will probably be paralysed when faced with mass cases,” said one doctor in a public hospital in Wuhan, central China, where the pandemic started nearly three years ago.
This week, in a CNN update, Laura He reported that market watchers were growing more worried over the economic fallout of putting one of China’s key transport hubs, Guangzhou, into lock-down while the city “scrambles to contain its worst Covid outbreak in three years.”
Ultimately, the question concerning Xi’s “pivot” is, probably, better framed not as “if,” but “for how long?”
For the rest of Ren’s Bloomberg story, Xi Pivots Fast on Covid and Property. Will His Cadres Listen?, click here. For Pete Sweeney’s Reuters’ analysis, Breakingviews - China’s property easing is minor capitulation, click here.
For a brief read on fang and shou in Chinese Politics, check out this War on the Rocks podcast (with transcript), here. To read FT’s update, We’re not ready’: threat of Covid exit wave stymies China’s reopening, click here.
Law and International Xi
Washington could enact tougher measures against China
“The US House of Representatives may form a new panel focused solely on Beijing in the Republican-controlled Congress that begins in January” if California representative Kevin McCarthy, who is vying for the top position of House Speaker, has his way, South China Morning Post reported. McCarthy told Fox News “on Sunday that he would set his sights on Chinese-made fentanyl crossing America’s southern border, intellectual property theft and the origins of the coronavirus pandemic in China, among other issues,” news staff said.
SCMP:
“This is where the fentanyl from China comes that will kill 300 Americans today – the number one killer of the next generation,” he said of the US-Mexico border.
“They never once in this majority had a hearing where COVID originated from”, McCarthy said, referring to the Democrats.
McCarthy also said he would investigate recent reports of unauthorized Chinese police stations allegedly operating in the US.
Meanwhile, there are new signs that the U.S.-China trade war could get even hotter, according to Jack Detsch, a Pentagon and national security reporter at Foreign Policy.
Detsch, FP:
A congressionally mandated commission is calling on the Biden administration to assess whether China is engaging in predatory trade practices, a ruling that could eventually lead to the United States suspending permanent normal trade relations with China.
If adopted, the recommendation, made by the U.S.-China Economic and Security Review Commission in its annual report to Congress released on Tuesday, would upset the two-decade trade relationship and further roil an already-fraught dynamic between the two superpowers. By rolling back so-called permanent normal trade relations approved by Congress in 2000 amid China’s push to join the World Trade Organization (WTO), the United States could set the stage to further raise tariffs on Chinese imports. (The Trump administration put in place 25 percent tariffs on a range of Chinese products in 2019.)
Emphasis added.
For the rest of SCMP’s report, Top US House Republican McCarthy vows a hard line on China, click here. For Destch’s update in Foreign Policy, U.S.-China Trade War Could Heat Up, click here. To read the USCC’s 2022 Annual Report to Congress, click here. (For discussion on “Challenging China’s trade practices” see Ch.2, section 2.)
Geopolitics
Canada charges battery materials researcher with spying for China
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