China’s police warn fearful investors not to protest
Michael SmithNorth Asia correspondent
Aug 18, 2023 – 4.16pm
China’s police have reportedly warned investors facing financial losses against making public protests, in stepped up efforts to clampdown on criticism and head off any social unrest over the country’s increasingly precarious financial health.
With concern growing China is on the brink of a financial crisis, Xi Jinping’s government has doubled down on efforts to contain negative economic data. Authorities this week stopped publishing data on the rising youth unemployment rate, while land sales figures were also missing from regular economic updates.
Police officers block protesters rallying about zero-COVID policies in Beijing in November 2022. Ng Han Guan
Investors who put money into troubled financial giant Zhongzhi said security police had visited them at their homes this week, urging them to avoid public protests, Bloomberg reported. Investors who received the visits come from a wide area of China, including from Beijing.
A subsidiary of investment giant Zhongzhi failed to repay trust products to at least two listed companies, it emerged this week, raising fresh fears about China’s opaque shadow banking sector.
Concern about China’s economic stability again escalated on Friday after the country’s most indebted property developer Evergrande Group sought Chapter 15 bankruptcy protection in New York. The move protects the developer from creditors in the US while it works on a restructuring deal elsewhere.
At the same time, another big private developer, Country Garden, missed two debt repayments which also triggered fears about its financial viability. Country Garden has major housing developments in Australia.
Experts said rising sensitivities from the Chinese authorities about the state of the economy reflected growing concern about the government’s ability to contain the country’s property, debt and unemployment problems.
“The ship is not sinking, but it is taking on water,” Drew Thompson, a visiting research scholar at the Lee Kuan Yew School of Public Policy at the National University of Singapore, said.
“This feels different. This isn’t like the tail-end of COVID when people protested. This is a tough one to fix. Is this a Lehman moment or a 1932 moment?
“It is more a question of scale than whether or not it is going to happen, and Chinese policies are exacerbating the crisis that is emerging by either cooking the books, not releasing information, or covering up unflattering data.”
China’s central bank this week cut rates to support the economy, temporarily helping stave off a decline in iron ore prices, but economists said Beijing needed to take more aggressive action to maintain economic growth. The Chinese government has a growth target of about 5 per cent this year.
Losses at Evergrande and Country Garden have triggered new fears about the risk of contagion from the property sector into the wider economy. Those concerns were compounded this week when two clients said Zhongrong, which is partly owned by Zhongzhi, failed to repay trust products.
Zhongzhi manages more than 1 trillion yuan ($216 billion) of assets and there have already been small-scale protests from investors in its wealth management products.
Protests by investors
China has a successful history of clamping down on protests, including public demands to end its zero-COVID policies late last year. For years, there have been protests by investors who have lost money in failed companies which are quickly shut down by police.
The economy has also long been a politically sensitive issue, with investors and stockbrokers saying they could no longer say anything negative about China’s financial health in public.
Experts said while there was the potential for widespread protests from investors in uncompleted apartments and now the shadow banking sector, the government would crack down on them hard.
“There could be outbursts of discontent and street protests, but those would not be sufficient to present a lethal threat to the regime. Still, it looks like a slow but relentless (economic) deterioration,” Willy Lam, a senior fellow at The Jamestown Foundation, told AFR Weekend.
“If you use the metaphor of a cancer spreading. China is still a 10-foot tall giant, but the cancer cells are spreading. It will be a very messy situation.”
Very paywall. Much [This Article Is For Subscribers Only]. Wow
I don’t know why you see a paywall, I can perfectly access it for free. But just pasted the entire article into the body.
Thanks!
Unsung hero
Nothing says “the economy is perfectly healthy and everything is fine” like forbidding talking about the economy.
It feels like the entire global economic system is really creaking at its joints. Turns out unbridled greed isn’t a good basis for the economy, who knew?
The only way to sustain an economy indefinitely is through equal trade of goods and services. Jim the carpenter fixes John the farmers roof, and John gives Jim food.
Any form of economy built on profit will crash. We do not have unlimited money or resources. We can substitute some services for money (as we clearly do,) but it’s the for profit part that destroys everything.
This is vastly oversimplifying things, but at the root of the matter, there’s only so many M&Ms in the bowl, and people getting greedy are taking the candy from people who haven’t even reached the bowl yet. Then those people with a surplus are trading their M&Ms for Skittles and marking them up for everyone else
Is it profit or the expectation of infinitely growing profit? I’d argue it’s the latter but I can’t back this argument up with anything except gut feeling 😅 Seems like a profit motive in itself wouldn’t inevitably lead to this situation, but the assumption that the profits have to continuously grow, which leads to more and more resource use etc etc (and expansion is usually funded with loans, and money isn’t tied to anything anymore)
I know that Japan played fire with ungrounded expectation of its economy. Due to that, their economy has stagnated for like 30 years. Actually, for the average Japanese person it has been worsening till today, without the income ever rising back to the level in the 80s. It’s now like half where it was, and this doesn’t even take into account the real wage.
Yeah, China’s economy is going to become REALLY bad for who knows how many decades.
Japanese income will never get back to 80s level, because 80s level was entirely built on unrealistic economics.
Now imagine andar future with two billion people complaining about economic status lost in the current time.
Indeed, going back to the 80s is impossible. I should have written instead that the status today for the average Japanese is very bad, because the Japanese financial model requires you to make savings and investment, which is impossible for the average Japanese. (God forgive what this country has done to the median Japanese, which is probably way worse.)
As you say, the Chinese level of corruption they are going to suffer even more…
These aren’t protests by the masses, these are “protests” by investors upset that China is de-risking the real estate market exactly to prevent a Lehman style crash. They stopped publishing youth unemployment because it was useless data, the job of the youth is to become educated, not to work in the economy. Having a low youth unemployment means your youth are either not getting educated, or are being forced to work during their education.
These aren’t protests by the masses, these are “protests” by investors upset that China is de-risking the real estate market exactly to prevent a Lehman style crash.
These investor are ‘visited’ by police telling them to shut up, supposedly because Beijing gets nervous about its economy.
The measures taken by China in 2020 in the property market (especially regarding the liquidity ratios) were correct, but they came far too late. It is another example why a centrally planned economy can’t work and is bound to produce devastating effects in the long run. (‘In the west’ there are similar liquidity rules in financial services, but they aren’t always applied due to massive lobbying activities as we could once again see recently in tbe U.S. with the failure of Silicon Valley Bank and others.)
Having a low youth unemployment means your youth are either not getting educated, or are being forced to work during their education.
Please stop posting such garbage. China has a lot of well educated young people, but they find no jobs.
They stopped publishing youth unemployment because it was useless data, the job of the youth is to become educated, not to work in the economy. Having a low youth unemployment means your youth are either not getting educated, or are being forced to work during their education.
At least in the US, unemployment is almost always defined defined as people who want to work but can’t find work. Students are generally excluded.
