The National People’s Congress, the annual event at which Those in Command have the opportunity to share some of the problems and successes they face with the nation and the world, ended this week in an uncharacteristically quiet way, without the traditional news conference by the Premier. It was definitely more of a whimper than a bang. The most interesting part of the whole 10-day affair was conversations between some of the provinces who are particularly hard up financially , and the state banks. It seems as if the Center is trying to avoid splurging money out to the poor provinces, for fear of inflation and waste, presumably in favor of passing on the problem to the state banks. But the question is whether or not the state banks will be willing to take on the responsibility, especially now that the provinces’ primary means of raising funds over the past 20 years, land sales, has largely dried up because of the dire state of the property market. And so there are only two possibilities for them. Either the Center in one way or another bails them out, or else they will be forced to cut services which will have an inevitable impact on the lives of ordinary people and increase unemployment.
The extent of the problem was highlighted in a fascinating graph published this week by the Financial Times, based on information from the 21st century China Center at UC San Diego, clearly an organization to watch. The graph showed “monthly debt servicing as a % of provincial revenue” and compared the percentage from 2017 and 2022. The gap is shocking. Tianjin, for instance, was 40% in 2017, and 200% in 2022. Jilin Province went from less than 20% to more than 180%. Six provinces and two “cities”—Tianjin and Chongqing—were reported to have monthly debt servicing at more than 100% of their revenues. This is clearly not sustainable, even in the context of a system which is so good at smoothing out problems to make them gradually disappear.
Things remain gloomy on the property front as well. First there was Evergrande, then there was Country Garden (which defaulted on a yuan bond this week). But now another major property developer, Vanke, has come under the spotlight with concerns about its viability. This is going to be a difficult year, with black swans and grey rhinos constantly springing up unexpectedly, but in the meantime: have a great weekend!