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Chart: Is Your Government Ready for Another Pandemic?

Source : Statistica

7 ‘Xiconomic’ Policies that Have Guided Growth Over the Past Decade

Frank Tang wrote . . . . . . . . .

Xi Jinping has reshaped China’s major economic decision-making institutions – most notably the Central Economic and Financial Affairs Commission – since becoming president.

Helped by Vice-Premier and chief economic adviser Liu He, Xi’s first term between 2013-18 was devoted to addressing domestic problems.

These included high debt, a dwindling demographic dividend, industrial overcapacity and poverty, with structural adjustments and de-risking campaigns high on the agenda.

Xi hardened his economic thinking amid the trade war with the United States, growing tension with major Western economies and the coronavirus pandemic.

“Xiconomics” encapsulates the long-term guiding principles of the world’s second-largest economy, and is central to “Xi Jinping Thought”.

It has helped China claim around 18 per cent of global gross domestic product (GDP), and put it on track to overtaking the United States as the world’s largest economy.

But Xi’s economic philosophy has also led to the overnight collapse of after-school tutoring services, a crackdown on big tech, the boom-or-bust fate of property developers and China’s zero-Covid strategy.

Here are seven events that have changed China’s economic landscape over the past 10 years.

Belt and Road Initiative (September 2013)

The Belt and Road Initiative was first used to revive connections along ancient trade routes and tap non-Western markets before turning into an ambitious strategy to expand China’s influence in more than 60 countries in Asia, Europe, Africa and South America.

The initiative was predicated on infrastructure connectivity but expanded to include trade and investment, with the establishment of the Asian Infrastructure Investment Bank, Silk Road Fund and the New Development Bank.

Non-financial outbound investment in 57 countries involved in the belt and road strategy rose by 14.1 per cent year on year to US$20.3 billion in 2021, according to data from the Ministry of Commerce, up from US$14.8 billion in 2015.

Reform Document (November 2013)

The Reform Document, released during the third plenum closed-door summit in November 2013, mentioned for the first time market principles would play a “decisive” role in the economy.

The third plenum refers to the third time new leaders of China lead a plenary session of the Central Committee, which usually takes place a year after they are appointed.

Previous summits have had a major impact on China’s development and on this occasion the Reform Document blueprint detailed 336 specific tasks to be achieved by 2020.

These included establishing negative list for foreign investment, fiscal reform, an initial public offering registration mechanism and financial opening, all of which fuelled enthusiasm that pro-market reforms would continue.

Some of the most easily achievable tasks were completed, but many key tasks were eventually shelved.

‘New normal’, supply-side structural reform (2015)

The “new normal” placed an emphasis on quality, rather than the pace of economic expansion, with Beijing focusing on a medium-growth stage.

It downplayed GDP and concentrated on addressing problems like rising debt, rampant shadow banking and demographic challenges.

Policymakers introduced supply-side structural adjustments, including tackling industrial overcapacity, regulation of the property market and deleveraging.

The reforms led to around 150 million metric tonnes of outdated steel capacity and millions tonnes of aluminium and plate glass capacity being removed from the economy between 2016-20.

Efforts were also made to shrink the size of shadow banking – off-balance sheet lending – and defuse a variety of financial risks buried in local government financing vehicles, peer-to-peer lending platforms and problematic small banks.

At the same time, the government took steps to reshape the property sector – a pillar of growth in previous decades – by introducing the principle that homes are for living in, not speculation.

It introduced macro-control measures ranging from blanket purchase and pricing restrictions, to tightening mortgage requirements and clamping down on illegal financing.

Financial regulators set three restrictions – the so-called three red lines – including capping major developers’ debt ratio to 70 per cent in late 2020.

‘Stronger, better and larger’ SOEs (2016)

State-owned enterprises (SOEs) have long been the backbone to China’s socialist market economy. But Xi pledged to make them bigger and stronger.

Since 2016, their role has been solidified after Beijing launched a new whole-nation mechanism to counter US trade sanctions and fight the pandemic.

“They form the economic and political foundation of China’s socialist system and are a key pillar for the [Communist] Party’s rule. They must be built stronger, better and larger,” Xi said in 2021, adding the state sector’s role “cannot be negated nor weakened”.

Bolstering the importance of SOEs, together with Beijing’s Big Tech crackdown and “common prosperity” strategy, raised concerns about the future of the private economy.

Net assets of non-financial state firms rose to 76 trillion yuan (US$11 trillion) in 2019 from 40.1 trillion yuan in 2015, according to the Ministry of Finance.

‘Dual Circulation’ (May 2020)

The economic strategy highlighted both internal and external circulation, but marked a shift from China’s decades-old, export-oriented development model, setting a series of new goals for the next 15 years.

The plan places greater focus on the domestic market, or internal circulation, and is China’s strategic adaptation to an increasingly unstable and hostile outside world.

In the future, there will be less reliance on export-driven growth, or external circulation, although it will not be abandoned altogether.

Key to the strategy is tapping the potential of China’s huge domestic market and promoting indigenous innovation to fuel growth.

Despite new emphasis on self-reliance, Xi has said repeatedly that China will not completely close itself off from the outside world – and will instead open up more.

Still, authorities hope to boost technological independence and have offered incentives to improve production of semiconductors and other cutting-edge technologies, particularly in areas that could be squeezed by Washington.

‘Common Prosperity’ (2021)

China is pursuing common prosperity, which calls for fairer distribution of wealth, as the main objective in its next stage of development, while stressing the need to maintain an airtight economy to support the goal.

Common prosperity marks a further shift from the decades-old pursuit of rapid economic growth, which lifted hundreds of millions of Chinese out of poverty but also expanded inequality.

The goal is to reform income distribution so that the middle class accounts for most of China’s wealth.

The strategy focuses on grass-roots consumption as a driver of growth, rather than capital-intensive investment, which has been popular in previous decades.

To get there, China’s leaders have introduced favourable changes to taxes and social-security payments for middle-income earners; enacted policies to increase earnings of the poor; and cracked down on practices and loopholes that may give rise to “illicit income”.

Small and medium-sized enterprises are also getting more support.

Xi has called for the protection of property rights, reiterating the country will continue developing both the private and foreign sectors, while keeping public ownership at the core of the Chinese economy.

But common prosperity does not just apply to financial markets, it also applies to society’s spiritual and cultural life. It will be extended beyond cities to rural areas, where infrastructure and living conditions, in particular, need to be improved, Xi said.

The common prosperity concept also covers access to public services.

Leaders are demanding better financial supervision, while taking steps to punish corruption in line with market principles and the rule of law.

Common prosperity also encourages “third distribution”, referring to the creation of opportunities for rich people and big companies to give back to society, including through voluntary gifts and charitable donations.

China’s leaders have denied the policy is a Robin Hood-style “rob from the rich to give to the poor” plan, but the crackdown on Big Tech – particularly the warning against getting rich through illegal means via capital markets – has fuelled concern about the role of the private economy and entrepreneurs, weakening investor confidence.

Zero-Covid strategy (2022)

China was the first major economy to recover from the initial shock of the coronavirus, but the introduction of a zero-Covid strategy early in 2022 to fight the Omicron variant has taken a substantial toll on growth.

Strict quarantine and isolation have hit the contact-intensive service sector, putting many small firms out of business, and having flow on effects for household revenue, the job market, mortgage repayments and consumption.
The two-month lockdown of Shanghai, China’s commercial hub, and partial lockdown of other major cities, increased pressure on the economy in the second quarter, resulting in growth of just 0.8 per cent year on year.

The at-all-cost endeavour to curb the less-deadly Omicron variant, with which many Western countries have chosen to live with, has raised eyebrows at home and abroad.

Some argue the move has deviated from the decades-old focus on economic development.

Xi has defended the policy, claiming it is the most effective and economic way to deal with outbreaks, while also saving lives.

Source : SCMP

Xi Jinping Looks to Take China Beyond Deng Xiaoping’s ‘Get rich’ Era with Historic Third Term

Frank Tang wrote . . . . . . . . .

Xi Jinping has stamped his mark on the economy like few of China’s leaders before him. But some experts say important reform has taken a back seat

How China will realize Xi’s goal of doubling GDP, as well as per capita income, by 2035 will be high on the agenda at this year’s 20th Party Congress

On a cold morning in mid-January, two dozen senior Communist Party officials, wrapped in black coats to protect them against the winter chill, stood solemnly in rows at the courtyard of Guohong Mansion, home to China’s top economic planning agency.

The group had gathered for the launch of the Xi Jinping Economic Thought Research Centre, the 18th research institution set up since the Chinese president’s philosophy was enshrined in the constitution in 2018.

A day earlier, China announced its gross domestic product (GDP) had grown 8.1 per cent to 114 trillion yuan (US$16.8 trillion) in 2021, beating expectations and moving it a step closer to supplanting the United States as the world’s No 1 economy.

The inauguration reflected not only Xi’s tight grip on power, but showed how central his economic thinking – dubbed ‘Xinomics’ – had become in China’s affairs.

Since taking office in 2013, Xi has expanded China’s economic influence abroad through the Belt and Road Initiative and introduced an inward-looking economic strategy at home. He has shaken up key industries and stared down US threats of decoupling. As president, he has left his mark on the economy like few before him.

“Xi Jinping is about taking China to a new era and a new direction of travel, under the guidance of his thought, not under Deng Xiaoping’s policy line,” said Steve Tsang, director of the SOAS China Institute in London.

“Whether he will succeed or not is of course another matter.”

Xi’s economic philosophy will be in the spotlight at the 20th Party Congress in autumn, where he is likely to be sworn in for a third term.

Historically, the event is a chance for Chinese leaders to review past policies and set the direction for new development. The economy, from which the Communist Party draws its ruling legitimacy, often dominates discussions, despite the congress being most well-known for ushering in a new group of leaders every five years.

In 1992, following late paramount leader Deng Xiaoping’s Southern Tour, the party resumed its mission of building a socialist market economy and opening up amid isolation from the West.

In 1997, private businesses were for the first time recognised as an important part of the economy, and entrepreneurs were officially allowed to join the party five years later.

This year the congress will lay foundations for Xi’s goal of doubling GDP, as well as per capita income, by 2035 – the basis of the Great Rejuvenation of the Chinese nation.

Chinese President Xi Jinping applauds during the commending meeting for Beijing 2022 Winter Olympic and Paralympic games at the Great Hall of the People in Beijing, China, April 8, 2022. Mark R. Cristino, EPA-EFE/file
Chinese President Xi Jinping applauds during the commending meeting for Beijing 2022 Winter Olympic and Paralympic games at the Great Hall of the People in Beijing, China, April 8, 2022. Mark R. Cristino, EPA-EFE/file
China’s Communist Party turns 100: How each generation justifies its rule

China is at a critical stage of development. Over the past decade, the economy has grown steadily and the country is now on the cusp of joining the high-income club.

On the other hand, it faces numerous headwinds: a demographic crisis, slowing growth, debt, deglobalisation, geopolitical tensions with the West and the coronavirus pandemic.

How well China navigates these challenges will largely be down to Xi, who has reshaped the country’s major economic decision-making institutions, most notably the Central Economic and Financial Affairs Commission.

“We must firmly grasp the problems concerning unbalanced and insufficient development, focusing on improving weak links, consolidating foundations and making full use of our advantages,” Xi told senior cadres in the Central Party School in late July. “New ideas and measures are needed to solve them.”

Helped by Vice-Premier and chief economic adviser Liu He, Xi’s first term between 2013-18 was devoted to addressing domestic problems.

These included high debt, a dwindling demographic dividend, industrial overcapacity and inequality, with structural adjustments and de-risking campaigns high on the agenda.

His second term was dominated by the trade war with the United States – which plunged relations to their worst point in four decades – and the coronavirus pandemic.

Faced with uncertainty abroad, Xi pivoted inward with the “dual circulation” strategy in 2020, putting emphasis on China’s huge domestic market and home-grown technology to power future growth. Some analysts said it marked a shift from China’s decades-old, export-oriented development model and participation in the US-led international system.

At home, Xi also sought to reduce inequality through the government’s “common prosperity” strategy and vowed to make state-owned enterprises (SOEs) “bigger, better and stronger”.

His backing of SOEs, which deviated from long-standing calls for market-oriented reform, fueled concerns about the place of private businesses in the economy. Those worries were amplified by the government’s regulatory crackdown on Big Tech and private tutoring.

The clampdown on the country’s big tech players, along with Beijing’s hardline zero-Covid policy, has shaken the faith of many foreign investors.

“Recent sporadic outbreaks of Covid-19 across the country and the corresponding snap lockdowns have taken away one of things most businesses have been able to depend on: a stable and relatively predictable business environment,” said the annual position paper of British Chamber of Commerce in China released in May.

A flash survey, which was completed by 372 European firms between April 21-27, when the commercial hub Shanghai was just part way through a two-month lockdown, showed 23 per cent of respondents are considering shifting current or planned investments out of China.

Now, with Xi’s third term in sight, a number of important questions have to be asked about the future of China’s economy. How important will ideology be in development? What will become of Deng’s mantra of reform and opening? And how will Chinese entrepreneurs and foreign investors fare in the years to come?

From rich to strong

Taylor Loeb, an analyst with research firm Trivium China, said the country is moving out of the Deng era of “Getting Rich” into the Xi era “Being Strong”, and his approach looks like a mix of wealth redistribution, a focus on self-reliance and supply chain resilience, decarbonisation, stability and quality growth over quantity.

“The state is the driving force behind realising all of the above,” he said. “China’s economic policies will become more inward looking.”

Market reform in China has stalled under Xi. According to China Dashboard, a joint project between Asia Society Policy Institute and Rhodium Group that monitors Beijing’s reform, there has been either zero progress or actual policy regression in most of the 10 major baskets of reform outlined in November 2013. Among them are SOE restructuring, competition policies, land and fiscal reform.

The assets of state-owned industrial enterprises have grown by 2.6 times to 259 trillion yuan (US$38.3 trillion) compared to a decade ago.

Nicholas Lardy, a senior fellow with the Peterson Institute for International Economics, said Xinomics includes more industrial policy and stronger support for state firms, while paying lip service only to inequality.

He said there was no “serious discussion” of economic reform, but rather a continuation of ineffective SOE policies of the past, such as corporatization, debt-equity swaps and mega mergers.

However, he pointed out that private firms continue to grow more rapidly than their state counterparts.

“Their returns remain much higher, most investment is financed from retained earnings, and private investment has held up remarkably well given the policy environment,” said Lardy, whose 2018 book the “State Strikes Back” charted the resurgent role of the state in the economy under Xi.

Derek Scissors, a senior fellow with the American Enterprise Institute, expected no change to overall economic policy after the congress.

“The core of Xi’s approach is [that] economics is subservient to politics, that economic gains must be sacrificed if they bring political risks,” he said, noting that the Chinese economy began falling short of its growth potential in 2015.

Unfinished reform

Reform may have slowed under Xi, but tackling deep-seated structural issues remains as critical as ever, economists say.

Addressing the country’s urban-rural divide is one pressing task, including more reform of the hukou system, which limits where people can live, work and receive public services. More spending in rural areas is also needed, analysts say.

“Migrant workers and urban residents enjoy different public services. It is urgent to break the dual urban-rural structure,” Cai Fang, a prominent labor economist and central bank adviser, said at the Caixin Forum in early July.

Urbanization, which draws labor into higher productive sectors, is still regarded by Chinese policymakers as a key way to drive growth and narrow gaps between cities and the countryside.

Huang Qifan, the outspoken former mayor of Chongqing, said the next stage of reform must focus on how to build a unified market.

“This is a top priority to unleash the potential of the Chinese economy’s super-large single market and form a strong gravitational field for the world economy,” said Huang, who is now a distinguished visiting professor at Fudan University in Shanghai.

“We need to use a reformist mind and pragmatic measures to eliminate obstacles in the economic system and internal circulation, and expand new market space with new policies.”

Whether Xi will heed these calls is unclear. China is still deeply embedded in the global supply chain and a major draw for foreign investment. But refusing to open up the economy further could come with consequences, according to some analysts.

David Zweig, an emeritus professor at Hong Kong University of Science and Technology, said it is unlikely that economic reform will return to the fore of policymaking in the short-term.

“China’s domestic market remains a powerful gravitational force, pulling in foreign firms despite the risks entering the China market can mean to their own survival,” he said.

“But as the clarity of that threat to the foreign firms and to the economic security of OECD countries intensifies, China’s mercantilism will keep relations with the world far more hostile than would have occurred under a more market-oriented and open strategy.”

Source : ABS-CBN

China Is Pushing for a Baby Boom. It’s Getting a Baby Bust.

Gu Peng and Fan Yiying wrote . . . . . . . . .

Julia Li has spent much of the past few years wrestling with a dilemma: She was married, in her late 30s, and still undecided about whether to start a family.

Li had been putting off having children for years, but now she was running out of time — and excuses. Her family and friends were urging her to have a baby on an almost daily basis. Even the government was seemingly trying to convince her, offering a slew of new incentives including extended maternity leave.

Last August, however, Li and her husband made a choice that’s becoming increasingly common in China: to remain a DINK — “double income, no kids” — couple.

In the end, Li felt that the costs of having a child outweighed any benefits, especially as recovering from childbirth at her age would be a “huge challenge.”

“I would face a high risk of accelerated aging, getting out of shape, and losing energy,” Li tells Sixth Tone. “It would significantly affect my career development and competitiveness.”

China is struggling to overcome young people’s growing reluctance to start families. Over the past year, the government has launched an unprecedented drive to push couples to have more kids, raising the birth limit and introducing a range of policies to support new parents. So far, however, the measures appear to be having almost no effect.

The country’s birth and marriage rates have plunged to record lows in recent years, threatening to trigger a demographic crisis. China already has one of the fastest-aging societies in the world, and the population may begin shrinking as early as this year. Unless something changes, experts predict that the nation will get sucked into a “fertility trap” of stagnant growth and skyrocketing social care costs that could last decades.

In a bid to boost the birth rate, the government scrapped the two-child policy — which had been in place since 2015 — for a three-child limit last July. Since then, it has introduced a number of other policies to encourage families to have more kids, including offering new financial incentives, improving access to kindergartens, and extending parental leave. It also said that couples who violated the birth limit would no longer face punishment, overturning 40 years of policy.

Some local governments have gone further. Beijing has added assisted reproductive technologies to its public medical insurance scheme, which will give couples an 11,000 yuan ($1,600) discount on in-vitro fertilization. Panzhihua, a city in southwest China’s Sichuan province, is paying families who have a second or third child 500 yuan per month for each infant until they reach the age of 3. Hangzhou, the capital of east China’s Zhejiang province, has even given families with three children a rare exemption from its strict housing rules, allowing them to buy a second property.

But the policies haven’t worked as expected. In April, China’s National Bureau of Statistics revealed that the nation’s birth rate had fallen yet again in 2021 — reaching its lowest level since 1949. Several provinces also confirmed that their birth rates had dropped to record lows.

Data for 2022 is scarce, but the early signs aren’t promising. An estimated 372,000 newborns were registered in the central Henan province during the first half of this year, down 9.5% compared with the same period last year. In Jiaozhou, a city in the eastern Shandong province, the number of birth certificates issued was down 25.5% year-over-year.

Public enthusiasm for the new policies appears to be tepid at best. On the day the government announced the three-child policy, state-run news agency Xinhua ran a poll on the social platform Weibo asking users if they were ready to have a third child. Over 90% of respondents said they “wouldn’t consider it at all.” Xinhua deleted the poll later that day.

Other surveys have produced similar results. In December 2021, 90% of respondents to an online poll of 50,000 people said they weren’t willing to have three children. When a user on the social platform Xiaohongshu asked their followers whether the new policies had made them more open to having children, the three highest upvoted comments read: “the policies are like a drop in the ocean,” “it won’t help at all,” and “it’s just empty talk without offering cash.”

The main issue is that the policies haven’t gone far enough, experts say. China is one of the most expensive countries in the world to raise a child, and the measures so far have done little to change this. In February, a survey found that the average cost of raising a first child in China was nearly 500,000 yuan, which is even higher than wealthy nations such as the United States, Germany, and Japan.

A study by scholars at Renmin University of China, meanwhile, concluded that the cost of getting married and raising children was the biggest factor putting off Chinese graduates from starting families, alongside the country’s highly competitive work culture.

Ren Yuan, a professor at Fudan University’s Population Research Institute in Shanghai, echoes this view. Studies have found that Chinese couples’ willingness to have children is “not very low” in principle, he says. But there is a substantial gap between the number of couples saying they’d like to have children and the number of people actually having them in reality.

“That is to say, some people who are willing to have children may eventually give up on the idea due to work pressure of lack of access to childcare services,” says Ren.

Supportive policies can help narrow this gap, Ren says, but the specific measures China has implemented so far haven’t moved the dial. The introduction of paternity leave is a positive step, but won’t affect families’ decision making. Similarly, the tax rebates offered to parents will barely affect the household budgets of couples in expensive major cities like Beijing and Shanghai.

For Ren, the most effective measure China could take to boost the birth rate would be to further improve access to nurseries and child care services for infants and children under 3 years old.

“It’s not that such support should be provided only to encourage people to have second and third children; it’s about providing more inclusive and high-quality reproductive services to all families with children or who intend to have a child,” he says.

But the reality is that China’s birth rate will probably fall again this year — and the country’s population is highly likely to experience negative growth, Ren says.

A nationwide Omicron outbreak has led to prolonged lockdowns in cities across China in recent months, which has triggered an economic slowdown, rising unemployment, and a growing sense of uncertainty about the future. All of this “is likely to adversely affect fertility intentions and decisions,” Ren says.

Li says the pandemic — and especially the Shanghai lockdown earlier this year — was another major reason why she decided against having kids. “Since we don’t have children, our lives weren’t significantly affected, but some families with children that we know suffered materially and emotionally,” she says.

In some cases, policies designed to support parents have also had unintended side effects, which could lead people to reconsider having more children. The decision by most Chinese provinces to extend parental leave is one example. Many women have complained that the policy is exacerbating gender discrimination in the workplace, as employers are unwilling to bear the extra cost.

Liu Qin, a former sales manager in Shanghai, had to resign from her job just two months after returning from maternity leave last year. During her absence, a colleague had filled her role at the company, and her manager would no longer assign Liu any “meaningful and challenging” projects, she says.

“My income was reduced by half without all the bonuses I used to make,” the 29-year-old says.

According to Liu, several other new mothers that she knows are also under pressure to quit their jobs. “It’s not just the employers; other colleagues have complained that we often take leave to take care of our babies, or that we aren’t as devoted as they are to work after we become mothers,” she says.

The extension of maternity leave also appears to be making it harder for women to get hired. Liu says she has been asked about her marital status during job interviews — a question that nearly 60% of female applicants in China face, according to a 2021 report. Several recruiters in Shanghai have told Sixth Tone that the new policy has made them reconsider hiring women with children, particularly young children.

For most couples, meanwhile, the subsidies on offer are still barely a consideration when it comes to having children. Camellia He, a mother of three living in the eastern city of Suzhou, says she chose to have three kids because she wanted to — and because she could afford it.

“I was pregnant, so I gave birth,” He says. “It just happened naturally.”

Zhao, a new mother living in the eastern city of Nanjing, also says that the new policies were barely a factor when she decided to get pregnant. “Those who don’t want more children won’t change their minds because of the policies,” she says.

The 29-year-old just had her baby in July, but she says she plans to stop at one child. The couple, who both graduated from top Chinese universities and have decent white-collar jobs, are struggling to save up for a deposit to buy a home in Nanjing.

“Because of the financial pressure, I wouldn’t consider having a second child for the time being,” Zhao says.

Source : Sixth Tone

China Takes Steps to Support Some Property Developers, Boost Demand in Economy

Clare Jim wrote . . . . . . . . .

China will guarantee new onshore bond issues by a few select private developers to support its embattled property sector, sources said on Tuesday, while the state planner said it would boost economic demand and speed up infrastructure projects.

News of the planned state support for some better-quality private developers saw the Hang Seng mainland properties sub-index rise by as much as 10% at one point, before profit taking pared gains.

Policymakers have been trying to stabilize the sector that accounts for a quarter of the national GDP after a string of defaults among developers and a slump in home sales.

The property sector’s troubles and weak consumption have weakened a nascent recovery in an economy that has been hobbled by strict COVID-restrictions.

Bleak data for July showed that the world’s second-biggest economy unexpectedly slowed and property investment fell at the fastest clip this year.

And on Tuesday, officials from the state planner gave assurances that policies would be geared to boosting economic demand in “a strong, reasonable and moderate manner” and infrastructure construction would be accelerated in the third quarter of the year.

Yuan Da, a spokesperson at the National Development and Reform Commission (NDRC), told a news conference that policy banks would grant more credit and more special local government bonds would be issued.

Homebuyers, and existing owners looking to improve their home, would also receive support, Yuan said.

There are also expectations for a cut in the loan prime rate later this month, which could give some relief to mortgage holders.

On Monday, the central bank unexpectedly cut the rate on 400 billion yuan ($59.33 billion) of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points (bps) to 2.75%.


Addressing fears that developers regarded as financially sound could also be impacted by the malaise gripping the property sector, four sources with knowledge of the matter said regulators have asked state-owned China Bond Insurance Co Ltd to provide guarantees for bond issuance by Longfor Group and CIFI Holdings.

Two of the sources said Longfor has already sold 3-year and 5-year medium term notes totalling up to 1.5 billion yuan ($220.80 million) with a guarantee from China Bond Insurance.

China Bond Insurance Co will provide “full amount, unconditional and irrevocable joint liability guarantee” to these medium-term notes, sources told Reuters.

Financial information provider REDD first reported the plan to provide guarantees for new bond issues by a few select mainland bond issuers on Monday evening.

Its report said policymakers had drawn up a list of half a dozen developers regarded as financially stronger, including Gemdale Corporation and Country Garden Holdings, whose bond issues would receive guarantees.

REDD also said policymakers were considering asking state investors to subscribe for new notes issued by developers. The issuers would have to provide collateral for the state guarantee but the use of proceeds would be flexible, it said.

Source : Reuters

China’s New Pro-Birth Plan: Give Families What They Need

Li Xin wrote . . . . . . . . .

Over the past few years, China has moved from a one-child policy, to a two-child policy, to three.

But young families are going in the other direction: Most say they plan to have only one child, and a growing number say they don’t plan to have children at all. The birth rate hit a record low in 2021.

As the country ages, many fear it’s on track to become a nation of retirees. Policymakers have tried to encourage people to have more children with incentives including tax breaks and increased paid family leave. But many young families say the cost of raising a child remains far too high.

It seems policymakers were listening. Seventeen Chinese agencies jointly announced Tuesday a raft of new measures to encourage families to have more babies, addressing issues from day care to workplace discrimination. The announcement also refers to reducing “medically unnecessary abortions,” in a move that has rights advocates worried.

The group, led by the National Health Commission and the National Develop and Reform Commission, said the guidelines will support people in the whole cycle of starting a family from “marriage and childbearing to childcare and education.”

“This guideline shows that the focus of China’s fertility policy has shifted from control to support,” Ren Yuan, a professor at Fudan University’s Population Research Institute in Shanghai, told Sixth Tone. In addition to simply regulating the number of babies, the state is “shifting its focus to offering relevant services and support, and addressing specific difficulties people encounter when planning to have babies,” Ren added.

Deng Shuang, a Shanghai-based mom of a six-year-old, considered having a second child when her son entered kindergarten three years ago. But she decided not to, rather than “going through the hard times all over again and a major lifestyle change.”

The full-time mom lives in a 90-square-meter apartment with her husband and son in suburban Shanghai. “We would need a bigger apartment if we got a second child, not only to accommodate the baby but also for my in-laws to live with us to take care of the baby,” she told Sixth Tone. “That would mean more financial pressure for my husband, who’s the only bread earner in the family now,” she added.

“I would choose to have a second child if the costs are lowered. I guess it all depends on how effectively these plans are implemented, ” Deng said.

The 36-year-old didn’t seek a job after giving birth to her son because babysitting and home chores took all of her time. Even though Deng had more time after her son went to kindergarten, she still couldn’t get a full-time job because kindergartens end at around 4 p.m., too early for most workers to finish their jobs.

Yan Li, a doctor in suburban Shanghai, went back to work shortly after her first child was born. Now mom to a six-year-old and a two-year old, Yan lives under the same roof with her husband, two sons, and her in-laws in a 100-square-meter apartment. She relies on her own and her husband’s parents to take care of the children while she’s at work.

Yan and her husband bought a second apartment last year, tripling their monthly mortgage payment.

“I never regret the decision to have a second kid because I love my sons, but we sure are under more pressure,” she said.

“A shortage of infant care and child care services in the public service system increased the burden on Chinese residents. The accompanying higher cost for infant and child care in turn limits the population’s childbearing behavior,” Ren Yuan wrote in a March article.

Source : Sixth Tone

Charts: Sweden Family Support Expenditures Higher Than Most Developed Countries

Sweden’s birth rate downward trend was halted and stabilized

Source : Nikkei

China’s Lockdowns Are Fueling Record Growth — in Inequality

Luo Meihan wrote . . . . . . . . .

As Shanghai emerged from lockdown in late May, many of the city’s wealthiest residents headed straight for the same store: the Hermès outlet at the exclusive Plaza 66 mall. Long lines formed outside the entrance, as people indulged in their first shopping spree in two months.

Mary Men’s experience was nothing like that.

The 34-year-old spent her first post-lockdown trip in a local supermarket — making some painful choices. For the first time in her life, she found herself studying the price tag of every item before adding it to her basket. She ended up spending just 15 yuan ($2.25) on a box of blueberries, whereas she used to like buying a whole selection of different fruits.

Like much of Shanghai’s middle class, Men struggled financially during the citywide lockdown in April and May. A marketing executive at an import-export firm, her 6,000 yuan after-tax monthly salary already barely covered her mortgage payments and other bills. Then, the shutdown sent food prices skyrocketing — and pushed her into the red.

The experience has forced Men to cut back. She no longer uses her credit card to shop online. Instead, she’s laser-focused on building up her savings, in case the city’s virus controls ramp up again.

“During crunch times, having money in your hands is the most important thing,” says Men. “You had to directly use money from your savings to buy pricey food (during the lockdown).”

Men is far from alone. As China tries to move on from a wave of spring lockdowns, there were hopes that consumers would kick-start the economy by indulging in the kind of “revenge spending” seen at Shanghai’s Hermès store. In reality, the opposite has happened.

Many consumers have emerged from lockdown in a pessimistic mood. Anxious about their personal finances, the precarious state of the economy, and the prospect of further lockdowns, they’re following Men’s example: making deep cuts to their household budgets and saving as much as they can.

That’s because — as has happened elsewhere — China’s lockdowns haven’t affected everyone equally. While wealthy Chinese have ridden out the pandemic with relative ease, a large number of working- and middle-class families have faced job losses and steep drops in income.

A recent survey offers a stark picture of rising inequality. China’s poorest households have seen their wealth decline every quarter since the pandemic began, according to the April report by the Southwestern University of Finance and Economics and Ant Group Research. The country’s wealthiest households, meanwhile, have gotten richer and richer during the crisis.

China’s consumption data reflects this trend. Sales of luxury goods have grown at double-digit levels year-over-year since 2020, according to consultants Bain & Company, putting China on track to become the world’s largest luxury market by 2025.

“The high-income group go for luxury goods partly with the aim of preserving and increasing their assets,” says Ye Min, an executive partner at consultancy PwC in China. “Their consumption is often for the purpose of investment.”

But from a wider perspective, things look very different. During the first five months of 2022, consumers spent more on daily necessities like food and beverages compared with last year, according to official data. But they cut back spending in many other areas, including cosmetics, jewelry, clothing, furniture, cars, and dining out. Total retail sales were down 1.5%.

Consumers’ reluctance to spend is a major headache for Chinese policymakers, threatening to drag down economic growth and fuel unemployment. But it’s also a tough problem to fix — especially as cases of the highly-infectious Omicron subvariant BA.5.2 have emerged in some Chinese cities, bringing the risk of more lockdowns.

Pinching pennies

Mu Cong, a Shanghai-based piano tutor, is one of many middle-class Chinese who have radically altered their spending habits this year.

After he was locked down at home in late March, Mu’s monthly income fell by 70%. Online piano classes were a tough sell, and he barely earned any class fees to supplement his 4,000 yuan basic salary.

“When I had a stable income, I preferred to enjoy myself,” says Mu, who spoke with Sixth Tone using a pseudonym for privacy reasons. “But as I spent more than I earned during the lockdown … I started to feel nervous, and felt the urgency to save more.”

The 22-year-old is now cutting down on non-essentials like coffee, home decorations, and new clothes. When he wants to buy something online, he first adds it to his shopping cart for a while — to allow himself to think twice before hitting buy.

“If you are thinking about whether you need it or not, it’s not essential,” says Mu. “For example, you wouldn’t hesitate to buy toilet paper. I’m giving up things I don’t actually need. It gives me a feeling of control over my life.”

Men, the marketing manager, has embraced a similar austerity drive. In late May, she took a higher-paying job and told herself she should save at least 30% of her salary each month.

“I didn’t worry much about money before,” says Men. “But now that I’m spending the money I have saved, every penny spent is a penny less.”

Adjusting to a new lifestyle hasn’t been easy, Men says. She has halved her living expenses to less than 1,000 yuan per month. She now rarely eats out or orders takeout, buys very little online, and commutes by subway instead of driving to the office.

“When I’m greedy for takeout, I scroll through several online food delivery platforms and look at different options many times, but don’t order anything,” says Men. “It is a bit painful at first to control yourself, and not spend the money you have.”

China’s migrant workers — who represent around one-third of the country’s workforce — have been hit even harder, as many of them fall outside the country’s welfare system.

A survey of migrant worker households by the nonprofit Beijing Social Work Development Center for Facilitators in April found that 73% had experienced salary cuts due to the recent outbreaks. Around 45% said their work had been affected even more than during China’s initial COVID-19 outbreak in 2020.

Li Tao, the founder of the Beijing-based nonprofit that published the survey, says many migrant worker households are having to cut back even on essentials, such as by adding fewer vegetables to their meals.

“They’ve largely run out of savings after the repeated outbreaks of the past two years,” says Li. “Plus, while the majority of respondents were optimistic about the COVID-19 situation in early 2020, now over 70% are anxious that the pandemic will continue to impact their household income.”

An uncertain future

Many middle-class Chinese share these concerns. The widespread expectation of more COVID-19 outbreaks — and lockdown restrictions — in the future is casting a longer shadow over consumer confidence than two years ago.

Mo Na, a self-employed headhunter, says that Shanghai’s monthslong lockdown has taken a heavy toll on her business — and her mental health. She used to spend thousands of yuan a year on cosmetics, but now she has stopped buying them completely.

“Being confined at home for months traumatized me psychologically and made me lose interest in cosmetic products,” says Mo, who also used a pseudonym for privacy reasons. “It’s meaningless consumption. It makes more sense to save money and invest it.”

Fearful of another lockdown, Mo also plans to shut down her business and apply for an in-house human resources job at a larger company. Although the salary would be far lower than what she earned as a headhunter, she feels she needs some stability.

“Since the outbreak, I’ve lacked a sense of security,” she says. “I don’t know if something worse will happen in the future. I don’t have the confidence to spend money — who knows if you’ll be locked up again for a few months?”

Mo is far from alone. Chinese financial authorities are witnessing record surges in household savings, as consumers adopt a defensive crouch.

A June survey of urban Chinese bank depositors by China’s central bank found that people’s confidence in their future earning potential was at its lowest level since early 2020. And a record number of respondents — 58.3% — said they intended to increase their savings, rather than their spending or investments.

The central bank’s financial data shows the same trend. During the first half of the year, China’s household savings rose by 10.3 trillion yuan — also a record — while new household loans fell to a seven-year low.

Gu Yue, a Shanghai-based new media editor, was planning to buy an apartment last year. But she has now ditched the plan, after the lockdown made her fear tying up her money in a mortgage.

“It could easily cost over 1,000 yuan to buy just a few things (during the lockdown) … It was like having your money flushed away every day,” Gu says. “Buying a house is not necessary. Having money in your hands is.”

Fixing the problem

For Chinese policymakers, stimulating sluggish consumer spending is an urgent priority. However, it’s also proving challenging as the country continues to implement tough virus-control measures.

So far, China’s stimulus policies have been relatively restrained. Unlike some major economies, it has avoided giving cash directly to consumers. Instead, it has focused on supporting embattled businesses and boosting the economy through massive investment in infrastructure projects, and hoping this trickles down to the consumption sector.

Some local governments, including the capital Beijing, have issued “consumption vouchers” to residents to fuel spending. But experts say handing out cash subsidies to ordinary consumers — especially those in low-income groups — will have a greater effect.

Economists, however, stress that much will also depend on the government’s COVID-19 policies. Dan Wang, chief economist at Hang Seng Bank (China), says consumption in Shanghai is likely to rebound to similar levels seen in 2021 by the end of the year — as long as the city can avoid further lockdowns.

“The key to ensuring income sources for low-income people is to find a targeted and long-term mechanism to cope with COVID-19 outbreaks,” says Wang. “A citywide lockdown must not happen again.”

“The recovery of the consumption sector depends on how the epidemic evolves … and when residents’ future expectations for job security, income, and the ease of travel improve,” says Tommy Xie, head of Greater China research at OCBC Bank.

Men, the marketing professional, agrees. For now, she feels she has no choice but to save as aggressively as she can. Her employer is already showing signs of financial strain. And she has a mortgage, health care costs, and aging parents to think about.

“I need to give myself some security,” she says. “No one knows what will happen tomorrow. Things can change at any time.”

Source : Sixth Tone

Infographic: How China’s COVID Quarantine Rules Have Evolved

Source : Sixth Tone

Black Box for New Cars Now Mandatory in the EU

Marie-Julie Van de Sijpe wrote . . . . . . . . .

From July 2022 onwards, all cars, trucks and buses manufactured in Europe will now have to be equipped with a black box, just like in airplanes.

The principle was voted on in the European Parliament in 2019, with the aim of improving road safety. The new rules for the road only apply to vehicles that are new to the market – people who drive around with a somewhat older car do not have to change cars or get one installed.

The new black box for cars comes with all sorts of safety applications: it records all driving data from speed and acceleration, to belt use and braking.

It also includes advanced systems that assist drivers to stick to the speed limit. Moreover, there is an option to install an alcohol lock.

Just like in airplanes, the device would come with an in-vehicle data recorder for incidents, with the difference being that it will not record any conversations inside the vehicle.

It will be easier for experts to access the driver’s data, as it helps to provide liability in case of serious accidents, by simply providing information about the first 30 seconds before and 10 seconds after the impact.

“It will be useful for serious accidents, which are a minority in relation to the total number of cases. The judicial authorities will not ask for the data after every accident. There are only 7,000 to 8,000 serious accidents out of 45,000 bodily injury accidents each year,” Benoît Godart, road safety spokesman at the Vias Institute, told La Libre.

Some motorists’ associations are not pleased with this decision and see it as “an additional cost for new cars”.

“The price of the device is about a hundred euros. This will be reflected in the price of the car and will also be included in the insurance,” Pierre Chasseray, general delegate of the French association “40 million motorists”, told France Info on Monday.

The black box mandate will be extended to private cars and other second-hand commercial vehicles from 2024 onwards.

Source : The Brussels Times