Chinese Regime Expands Role of Public Security to Address Economic Risks in Finance and Real Estate

A security guard wears a mask when standing in front of the front gate of Shanghai Stock Exchange Building in Shanghai, on Feb. 3, 2020. (Yifan Ding/Getty Images)

The Chinese Ministry of Public Security has expanded its role beyond combating economic crime to include proactive risk prevention in finance, local government debt, and real estate—a move that prioritizes the preservation of the regime, according to an expert.

The Party Committee of the Ministry of Public Security announced its new plans on June 5.

Earlier this year, the surprise presence of Minister of Public Security Wang Xiaohong alongside Premier Li Qiang at a capital market session sparked speculation among analysts.

Commentator Li Linyi told the Chinese-language edition of The Epoch Times that the move underscored the Ministry’s pivotal role in regulatory oversight, with an emphasis on enforcement strategies such as arrests and intimidation.

Beijing’s emphasis on risk management suggests that Beijing has given up trying to stimulate economic growth, said Wu Jialong, a macroeconomics experts based in Taiwan. Instead, it is prioritizing the preservation of the Party.

“It is security rather than development,” Mr. Wu said. “Maintaining its political stability and controlling the public outweigh the significance of investment.”

The systemic financial risks plaguing the Chinese economy are exacerbated by unresolved issues in local government and state-owned enterprise debts, said Mr. Wu.

Sun Guoxiang, an associate professor from Nanhua University, warned of the alarming implications of the Ministry’s expanded role, particularly in the real estate sector.

He noted that the deepening integration of public security and real estate reflects concern about broader societal discontent stemming from market instability and that the volatility in the real estate sector is undermining the broader economic stability of the country.

“It could transform from a real estate crisis into a full-blown economic crisis,” said Mr. Sun.

Stimulus Measures and Market Response

Beijing introduced major stimulus measures in May this year to address the ongoing slump in the property sector. These include lower down payment requirements for homebuyers and a 300 billion yuan ($41.35 billion) fund from the central bank to help government-backed firms purchase excess inventory from developers to convert these properties into affordable housing.

However, the market has reacted skeptically. Bloomberg reported that Chinese developer shares fell by as much as 2.6 percent on June 6, extending losses from their mid-May peak to approximately 20 percent.

Some private developers see very few, if any, of their projects being selected as the lending facility is inadequate and the scheme is only expected to launch in bigger cities where affordable housing is available.

Mr. Sun explained that converting unsold property into affordable housing could distort the supply-demand relationship, affecting pricing mechanisms, and the unreasonable returns could erode developers’ confidence in future investments.

Affordable housing would also require subsidies, further straining local government finances, he said.

Unemployment and Economic Challenges

Mr. Wu said the over-reliance on property investment in China’s economy is the root cause of the current crisis, along with excessive investments intertwined with local government financial issues and an aging population.

He argued that the real estate crisis mirrors the employment crisis, with state-owned enterprises lagging in job creation compared to agile small and medium-sized enterprises, which are now struggling with pandemic-induced bankruptcies and reduced job prospects and tepid consumer demand.

Alongside the ongoing debt crises of real estate companies, China is plagued with massive unfinished properties and the protesting victims of the unfinished projects. Mr. Sun stated that policy alone cannot address longstanding structural issues in China’s real estate market. The government’s rescue packages have proven ineffective.

“Once confidence is lost, no amount of policy stimulus can restore it. The outlook is pessimistic for both homebuyers and investors,” Mr. Sun said.

Haizhong Ning, Yi Ru, and Reuters contributed to this report.