CCP Plays the Blame Game Amid China’s Looming Financial Crisis and Failed Market Rescue Efforts

A woman leaves the Stock Exchange building in Shanghai, China, on Nov. 4, 2020. Hector Retamal/AFP via Getty Images

As China’s economy experiences a significant downturn, the Chinese Communist Party (CCP) is attempting to shift blame by cracking down on various regime officials in its expanding corruption probes.

According to statistics from the CCP’s Central Commission for Discipline Inspection, since November, at least nine financial executives in state-backed banks have been ousted, with over 90 such officials being purged this year.

China’s Dire Economic Situation

On Dec. 8, the Shanghai Stock Exchange closed at 2969 points, marking the second time this year it fell below the crucial 3000-point mark. Concurrently, the Shenzhen Stock Exchange dropped below 10,000 points, and Hong Kong’s stock market saw a 25 percent evaporation of stock prices this year.

On Dec. 5, Moody’s Investors Service, a renowned international rating agency, downgraded the outlook on China’s A1 debt rating from “stable” to “negative.” Moody’s stated that China needs to provide more financial support to local governments and state-owned enterprises. In addition, China’s attempt to contain the real estate crisis will incur high costs, all of which will negatively impact financial stability.

The next day, Moody’s also cut the outlook for eight major Chinese banks from “stable” to “negative.” Those banks include the “Big Four” state-owned banks—Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank—all of which are among the top 10 largest banks in the world by market cap.

A sign for Moody's rating agency is displayed at the company headquarters in New York, on Sept. 18, 2012. Emmanuel Dunand/AFP via Getty Images

The exchange rate of the U.S. dollar to the Chinese yuan was approximately one to 7.14 on Dec. 8, having exceeded the seven mark for over half a year.

In the real estate sector, dozens of Chinese real estate companies have seen their funding chains break. Nomura’s Chief China Economist, Lu Ting, estimates there are around 20 million incomplete and delayed pre-sold homes in China. A mid-November Nomura report suggested that around $440 billion would be needed to complete construction on these homes.

New York-based Chinese political commentator Li Linyi said to The Epoch Times on Dec. 10 that if China’s economic crisis were to implode eventually, the CCP would highly likely attempt to shift blame to Li Keqiang and his faction within the regime.

After the 19th National Congress of the CCP, the Central Financial Commission was established in March this year, currently headed by Premier Li Qiang as its leader and Vice Premier He Lifeng as its office director. Li Qiang and He Lifeng are both trusted confidants of Chinese leader Xi Jinping.

“Now, those who wield substantial power in the CCP’s financial sector are people the party leader trusts,” said Li Linyi. “The officials recently purged are people appointed by Li Keqiang during his tenure as premier. This is a clear sign.”

At the age of 68, Li Keqiang’s sudden death on Oct. 27, only half a year after stepping down as premier, raised many questions as to how he actually died, according to Li Linyi.

Ineffective Market Rescue Efforts

Despite the CCP implementing a multitude of market rescue efforts, they have not yielded noticeable results.

On Aug. 28, the stamp duty on stock transactions was halved. The pace of initial public offerings (IPOs) was slowed. The margin requirement for investors’ margin purchases was reduced from 100 percent to 80 percent, and further regulations were imposed on shareholder holding reductions.

On Sept. 14, the People’s Bank of China, China’s central bank, announced a 0.25 percentage point reduction in the reserve requirement ratio for financial institutions.

On Oct. 11, China’s “Big Four” banks increased holdings of their own shares and announced plans to continue doing so for the next six months.

The People's Bank of China, the central bank of China, in Beijing, in a file photo. maoyunping/Shutterstock

In late November, Chinese state media revealed that regulatory agencies were drafting a whitelist covering 50 real estate companies. Companies listed would receive support in credit, bonds, financing, and other areas.

Apart from stimulus policies, China’s Ministry of State Security issued a warning on Nov. 2 to actively engage in “close surveillance” in economic, financial, and other sectors. The warning was against four groups of people in particular. They are those who predict the “hollowing out” of the Chinese economy, those who have already taken action to withdraw funds from China, those who talk and promote the idea of moving capital out of China, and those who are draining the Chinese economy from within.

Rather than stabilizing the economic situation, the implementation of these policies provided an opportunity for foreign capital to flee. Between August and October, foreign investors sold a total of 172 billion yuan ($23.6 billion) worth of Chinese stocks, with an additional 1.78 billion yuan ($250 million) sold in November. These four months of capital outflow set a record for the longest consecutive outflow since the Shenzhen-Hong Kong Stock Exchange was launched in December 2016.

Risks for the Market Rescuers

Many of China’s state-owned enterprises involved in market rescue found themselves in dire straits.

On Nov. 29, state-owned major insurance companies China Life Insurance and New China Life Insurance jointly announced the establishment of a 50 billion yuan ($7 billion) private equity securities investment fund. Not only was the fund substantial in size, but its duration is “10+N” number of years, meaning it can be extended beyond the initial 10 years as circumstances dictate. The two insurance giants emphasized that this was a significant project in line with relevant policies, optimizing life insurance portfolios.

Chinese state media Xinhua hailed this collaboration as an encouragement for long-term capital entry into the market, supporting stable development of the capital market, and acting as a “stabilizer” in the economy.

Just over a week later, both insurance companies’ stocks listed in Hong Kong hit their lowest points of the year on Dec. 8.

On Nov. 9, Reuters reported that Chinese authorities asked China’s Ping An Insurance Group to take a controlling stake in Country Garden to deal with its financial difficulties. This news sparked market concern, causing Ping An’s stock price to drop by more than 5 percent.

Ping An Insurance issued an urgent statement denying the report, stating that they had never received any such requests from the Chinese authorities. However, Reuters stood by its report, citing four sources claiming that the regime had indeed made such a demand.

Ping An’s stock price continued to decline thereafter.

Jane Tao contributed to this report.