Recently, the Chinese Communist Party (CCP) has urgently introduced a package of economic stimulus measures in an attempt to save the sinking Chinese economy from its worsening crisis. It is reported that due to the continuous influx of bad news, by late September, the situation had become unbearable even for the CCP leader Xi Jinping, leading to the introduction of so-called “market rescue policies” lacking details and logic.
This marks yet another 180-degree policy shift by Xi Jinping since the abrupt end of the “Zero-COVID policy” during the COVID-19 pandemic.
The Wall Street Journal reported that Xi Jinping’s centralized decision-making style repeatedly leads to sudden policy shifts, resulting in the opacity and unpredictability of the CCP’s economic policies, which may increase investment risks in China.
According to officials and government advisors close to the CCP decision-making level as cited by The Wall Street Journal, local CCP governments are on the verge of financial collapse, prompting Xi Jinping to compromise in order to prevent an upcoming financial crisis.
Reports received by the CCP’s power center indicate that liquidity crises are worsening across China. Particularly, financially strained local governments are unable to pay salaries to government officials, state-owned enterprises, and private contractors.
These officials and advisors suggest that Xi Jinping’s short-term goal is not a significant boost in demand, but to prevent the looming financial crisis. Simultaneously, he is committed to maintaining the CCP’s dominant role in economic development and fulfilling China’s ambitions to become a powerhouse in industry and technology, a position he has long advocated for.
Many economists had previously recommended that if Beijing aimed to drive economic recovery, strong measures were needed to stimulate domestic economic demand. However, the long-awaited genuine market rescue policies are still nowhere in sight.
On October 8th, the National Development and Reform Commission of the CCP held a press conference but surprisingly did not announce any specific measures, leaving investors disappointed and causing a significant plunge in the Chinese stock market. The conference also revealed the leadership’s determination to continue supporting high-end manufacturing industries (such as electric vehicles), even at the expense of domestic overcapacity and exacerbating trade tensions with the West.
Then, on the past Saturday (October 12th), the CCP’s Ministry of Finance held a press conference mentioning the issuance of special national bonds, but the specific amount was still unclear. Insiders revealed to The Wall Street Journal that this funding was not intended for long-awaited large-scale fiscal stimulus but to alleviate liquidity constraints faced by local governments and inject capital into state-owned banks.
Professor Xie Tian from the School of Business at the University of South Carolina-Aiken remarked to Epoch Times that the CCP authorities had only outlined a direction without concrete strategies yet in the real economy.
Another focal point of the economic stimulus measures is to rescue the Chinese stock market, which has been on a downward trend for four consecutive years. The People’s Bank of China is taking unprecedented measures to encourage securities firms, insurance companies, and listed companies to purchase stocks using funds from the central bank or commercial banks.
However, some analysts have raised doubts about the logic behind this move, as companies typically use their own funds rather than borrowed funds to repurchase stocks.
Boosted by the CCP’s central bank policies at the end of September, Chinese mainland and Hong Kong-listed Chinese stocks surged suddenly, prompting enthusiastic coverage and hype by CCP state media, fostering a “herding effect” among retail investors.
In stark contrast to the rush of retail investors to enter the market is the announcement of over 270 listed companies in China and Hong Kong reducing their shareholdings, with 172 companies in the Chinese A-share market alone.
The brief euphoria did not last long, as within three trading days after the “Golden Week” holiday in China, the stock market went from a brief surge to a sharp decline, followed by erratic movements, ultimately returning to late September levels. This “manufactured bull market” evokes memories of the 2015 Chinese stock market crisis, as economists caution Chinese investors, especially small retail investors, that it is difficult to profit during a bull market.