China’s economic situation is not good, Li Keqiang revealed that it will “lower the standard”

Chinese Premier Li Keqiang said recently that he would take “timely downgrading” measures to provide more loans to enterprises to ensure economic operation. Experts analyze that China’s economy continues to plummet, and this move by the authorities shows that they are already worried about the economic downturn.

Li Keqiang warned China’s economy one after another

In the afternoon of Dec. 3, Li Keqiang held a video meeting with International Monetary Fund (IMF) Managing Director Kristalina Georgieva in Zhongnanhai’s Ziguang Pavilion. He said that in order to ensure the stable operation of China’s economy, he would take the measure of “timely downgrading”.

The “timely downgrade” is a measure taken to hedge against the downward pressure on China’s economy, which means that the government will provide more monetary loans to the market in order to stimulate the economy by borrowing.

Zhang Zhiwei, chief economist at BUPA Capital Management, told Reuters on 4 December: “The downside cycle will not be reversed by the RRR cut alone, and the future of the economic cycle depends on the strength of fiscal policy support and whether real estate policy will be fine-tuned.”

On December 3, 2021, Communist Party Premier Li Keqiang said he would take “timely downgrading” measures to ensure China’s economic performance. Li Keqiang is pictured at the Great Hall in Beijing on May 5, 2021.

Earlier, Nomura Securities Chief China Economist Lu Ting pointed out in a research report released in November that a series of recent meetings and policy reports by the Chinese Communist Party showed that the authorities are starting to worry about economic growth and have taken action to adjust their policy stance to avoid a further decline in economic growth.

China delivered poor economic data in the third quarter, with GDP (gross domestic product) growth of just 4.9 percent year-on-year, well below expectations and a 3 percentage point slowdown from the second quarter.

Lu Ting expects the Communist Party will soon inject more monetary loans into the market to counteract the growing downward pressure on the economy. However, China’s economy may still not be effectively boosted by many factors, including the epidemic, the CCP’s policy of zeroing out epidemic prevention, the risk of power shortages, weak real estate and slowing export momentum.

In the third quarter monetary policy report, the Central Bank of the Communist Party of China wrote that China’s economy is under new downward pressure, and it is more difficult to achieve the “six stability” and “six protection”.

Li Keqiang, who is in charge of the economy, recently issued several warnings, and he bluntly said at a seminar for entrepreneurs on November 19 that China’s economy is currently facing many challenges to run smoothly, and that the economy should “climb over the hurdles”.

Three days later, Li Keqiang hosted a forum of some local government leaders in Shanghai, once again mentioned that the domestic and international environment in the increase in unstable factors, the economy is facing new downward pressure. He asked localities to continue to do a good job of standing epidemic prevention and control to prevent and resolve risks.

The Chinese Communist Party’s debt to stimulate the economy is caught in a vicious circle

At present, the only way for the Chinese Communist Party to stimulate economic growth is to continue issuing debt. However, China’s huge debt problem has long raised international concerns. Many economists say that China’s economic growth is essentially a bubble economy based on huge debt.

Since the trade war and the outbreak of the Chinese Communist Party virus, China’s economy has continued to decline and the debt problem has become more and more pronounced. Taiwan’s Business Times reported on Nov. 10 that Chinese real estate giant Evergrande Group is in a debt crisis and faltering, a microcosm of the Chinese economy.

Data from the Ministry of Finance of the Communist Party of China (CPC) on Nov. 23 showed that from January to October 2021, the CPC issued 6,491.6 billion yuan (RMB, same below) of local government bonds, up from 6.44 trillion yuan for the whole of last year, setting a new record high.

By the end of October 2021, the CCP’s local government debt balance was close to 30 trillion yuan.

According to Goldman Sachs’ estimates, the hidden debt of local governments in the CCP is as high as 53 trillion yuan, equivalent to 52% of China’s annual gross national product (GDP).

Goldman Sachs’ research found that about 60% of the amount raised from debt issuance by China’s local financing platforms was used to repay maturing debt, rather than for new investment. This suggests that China’s local governments are borrowing new debt to pay off old debt, and the debt snowball is getting bigger and bigger in a vicious cycle.