China’s economy is in the toilet.
And Xi Jinping knows
he screwed up badly.
Welcome to China Uncensored, I’m Chris Chappell.
This episode is sponsored by MOVA Globes.
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So, Chinese presitator Xi Jinping has secured a third term in power after
a major meeting of the Chinese Communist Party.
But now he has to keep it.
It’s kind of like how Disney movies end with a wedding and “Happily Ever
After”... but they don’t show you how staying married is the hardest part.
Who knew marrying someone of a different species that you knew for one day was a bad idea?
Xi Jinping knows he’s surrounded on all sides by opponents and rivals.
He even has enemies on the new Politburo Standing Committee, the 7 most powerful men in
China. In a future episode we’ll have an in depth breakdown of the makeup of the Standing Committee.
The point is—Xi could easily lose his grip on power. And he knows he’s made some major mistakes.
I mean, I would hope so. I’ve literally made a career out of pointing out those mistakes.
His biggest mistake lately is the Zero Covid policy. Brutal lockdowns
fueled widespread dissent and wrecked the Chinese economy.
Of course the Chinese Communist Party can’t actually admit it made mistakes. That’s why the
Party recently announced it was going to, “set out new rules to ‘optimize and adjust’ the policy”.
That’s right, they’re just optimizing Zero Covid.
So how is the Chinese Communist Party “optimizing” Zero Covid?
For starters, the mandatory quarantine time for people traveling to China, or close contacts of
people with Covid has been shortened. Also, areas of high risk—that is, a place where someone got
Covid and so everyone else around them has to go on lockdown, will be limited to residential
blocks, INSTEAD OF ENTIRE DISTRICTS. That’s how you got tens of millions of people in lockdown.
So now it’ll only be *ones* of millions in lockdown. Yay, improvement?
But the guidance makes it clear China will “firmly stick to the dynamic zero-Covid policy”.
“Dynamic zero-Covid” means that whenever there’s an outbreak,
they round people up and drag them off
to a horrible quarantine camp. So they’re still gonna do that.
They’re just going to lock healthy people in their apartments slightly less often now.
This policy change obviously has nothing to do with science, and everything to do with politics.
Which is something you can say regarding just about any story covering Covid.
“The easing of controls came even as China confronted its
worst outbreak in more than six months.”
And that’s according to official figures. Which
tend to also be based more on politics than anything else.
Zero Covid was always primarily about control, not stopping a virus.
But now that the policy is actually making the Party lose control, it’s backing off.
And frankly, the Party has said it was backing off in the past,
only to turn around and crackdown harder than ever.
Earlier this year, the Party said it was easing
off restrictions—but then authorities put Shanghai into a two-month lockdown.
And I mentioned in yesterday’s episode, people are literally
rioting in Guangzhou this week because of lockdowns, despite the so-called easing.
Check out that episode. Link is below.
I’d trust the CCP about as far as I can throw them. And since they’re an entity,
that means I literally can’t throw them, which means I don’t trust them at all.
The point is, people aren’t very optimistic about what’s happening in China.
Goldman Sachs called China’s changes “‘marginal,’ amounting to little
more than ‘fine-tuning,’ and would have only ‘limited implications for near-term activity.’”
Nevertheless, showing that the business world is mostly brain dead when it comes to
the Chinese regime, just a hint at easing Covid restrictions sent stocks surging.
I mean, what could go wrong with investing in an authoritarian regime that has the
power to completely shut down the economy and has a long history of outright lying?
If you actually don’t know the answer to that question,
I suggest subscribing to this channel and starting from the beginning.
Which brings me to the other big announcement. The
Party is trying to revive the real estate industry. More on that after the break.
Welcome back.
China’s real estate industry makes up about 30% of the country’s total GDP.
And if you’ve been paying attention, it really hasn’t been doing too well lately.
The whole thing was propped up by bad loans and excessive debt.
Developers were defaulting on loans they took out to build huge apartment complexes.
The apartments were mostly pre-sold. That meant people were paying mortgages
for apartments that hadn’t been built yet. Many people began refusing to pay,
creating an even greater death spiral for the real estate market.
But not to worry, because after the Party Congress,
“Xi has consolidated control over economic policy-making.”
Surely more government intervention will solve the
problems originally caused by government intervention!
So on top of the new Covid guidance, “[Xi Jinping] is signaling a reversal
of his real estate crackdown, too, a tacit acknowledgment of the economic
pain and public frustration that the two policies have engendered.”
Without ever acknowledging that, of course.
Essentially his plan is to force banks to lend more, reduce down payments for property,
cut mortgage rates, and a few other things. Basically the idea is to get
money into the system so developers can finish building properties they’ve already sold.
That, combined with the slight easing off of Covid restriction has some people celebrating.
Though to me, it has big “Mission Accomplished” vibes.
People are saying the real estate crisis could be over, as Chinese property stocks soar.
Which tells me no one has learned their lesson from any of this.
The Communist Party isn’t doing anything fundamentally different. The real estate crisis
hasn’t been fixed. They’re just pumping more debt into the system to keep it hobbling along.
The problem is a lot of investors, big banks, and Wall Street executives think they can trust
the Communist Party to solve any problem that arises, so China is a safe investment.
But while state intervention can often solve narrow, short-term problems...in the long term,
too much intervention actually creates problems that then become even harder to solve.
The free market is what has repeatedly been
shown to deliver the greatest wealth for the greatest number of people.
When the whole real estate crisis began—or at least this round of it,
a top investor for Blackrock said, “The banking system tends to be controlled by
the government. There is government intervention that presumably would
come in...My sense is the government will act, and my sense is it will stabilize.”
State control does not bring stability! It breeds instability.
Way too many people think the Chinese Communist Party can bail out the real estate sector as if
it's magic. Well I got news for you, they botched the stock market rescue in 2015.
And yet no matter how many times they get burned by China’s terrible policies,
investors keep flocking back for the promise of big gain.
If you need more proof, as I said earlier,
this slight hint of change from the CCP has caused property stocks to soar.
But the property slump has continued.
“In October, sales by the 100 biggest real estate developers contracted almost 27% from a year ago.
So far this year, their sales have fallen by 43%.”
Days after the Covid and real estate announcement,
the Japanese financial holding company Nomurareleased a research report concluding,
“The property market has yet to show signs of recovery.”
“Beijing’s﻿ zero-Covid strategy, despite some latest fine tuning,
will continue to weigh on the property sector.”
In other words, none of the changes have actually made any positive change.
I think the people in China are pretty aware of that.
It’s just the really big brained Western financial experts who haven’t caught on yet.
They’re just focusing on the “happily ever after” and not considering what happens next.
And this episode has been sponsored by MOVA Globes.
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Once again I’m Chris Chappell, see you next time.