China’s Xi Intensifies Anti-Corruption Purge Ahead of the Crucial 20th Party Congress

Chinese regulators are cracking down on the real estate and banking sectors

At a recent meeting of the Central Commission for Discipline Inspection, Chinese Communist Party leader Xi Jinping stressed that anti-corruption efforts need to target both "flies" and “tigers,” referring to lower and senior level officials. Ed Jones/Pool/Getty images

Commentary

Xi Jinping’s anti-corruption campaign targeting the real estate and banking sectors could be compensation for his failure to make good on campaign promises.

Nearly 5 million people—including Chinese Communist Party (CCP) officials, entrepreneurs, and ordinary citizens—have been caught in Xi’s anti-corruption probes. Xi rose to power through his anti-corruption campaign, which began in 2012.

Along the way, he promised the people economic prosperity, but the past two years have dampened that dream. He pledged a Belt and Road Initiative (BRI, also known as “One Belt, One Road”), which would connect the entire world. So far, it remains an incomplete string of over-budget, underperforming, and unfinished projects partially encircling the globe.

Xi vowed to restore the “great China”—a hint at annexing Taiwan. But 10 years into his two terms as leader, Taiwan is still no closer to being part of mainland China.

Xi also promised to stamp out COVID-19, which is now backfiring on him. Not only has the virus proven to be immune from his edicts, but the ongoing lockdowns are also wrecking the economy.

In the run-up to next month’s National Congress, where Xi is expected to be handed a third term as leader, he is intensifying his anti-corruption campaign, making good on the one promise he has complete control over.

Beijing is launching investigations into real estate executives, which it claims is part of a general anti-corruption campaign. The investigations may add to a loss of investor confidence in the sector, reflected in falling stock prices. The shares of 33 large developers have lost 3.7 percent of value over the past six weeks.

Two of the targeted executives in this investigation are Shi Zhen, chairman of C&D Urban Services, and Tang Yong, chairman of China Resources Land. The subsidiaries of both companies have been hit particularly hard, losing as much as 30 percent of their value.

Surveillance cameras near a real estate project under construction in Shenzhen, Guangdong Province, China, on Nov. 8, 2021. David Kirton/Reuters

Defaults and missed payments are becoming more common across the real estate industry. Powerlong Real Estate Holdings issued a profit warning on Aug. 24, stating that its profits may have dropped by as much as 37 percent for the first half of the year. Trading in shares of Logan Group, which reported a 20 percent reduction in profits last year, was suspended for three months due to the group’s failure to release timely audit information. After the resumption of trading, its share price dropped by 58 percent. In August, after the company missed interest payments on some of its $6.6 billion of outstanding bonds, it hired an adviser to restructure its debts.

At the same time, the banking sector is also being investigated. Investigators alleged that state-owned banks, including the Industrial and Commercial Bank of China, had lax governance and risked corruption in loans and other key areas. So far, at least 40 officials and regulators at state banks have been targeted, including former executives such as Zhang Long, former head of the investment and wealth management department of China Construction Bank Corp.

Home prices have been in steady decline for the past 12 consecutive months, and the yuan has crossed the threshold of 7 to the U.S. dollar. The investigations and loss of confidence, along with a generally slowing economy, threaten to cause an implosion of the entire real estate sector, which accounts for 29 percent of GDP and 26 percent of outstanding debt.

The basic model for property development in China is that developers begin collecting installment payments from homebuyers before the projects are completed. In some cases, buyers make payments before the projects have even begun. This money, combined with loans, is then used to start the next project. Contracts for the new homes are then sold to purchasers who start making installment payments. These payments are added to loans, and the next construction project is launched.

As the economy has been trending downward, it has been harder for developers to find new buyers. And Xi’s crackdown on lending has also made it difficult for real estate companies to borrow additional money to fund their continued operations. As a result, real estate companies are not only slipping into default, but homes, which buyers have already begun paying for, are not being completed. Striking back, homeowners in 100 cities have threatened to halt mortgage payments. As of Sept. 16, the owners of 342 development projects have joined the boycott. In a vicious cycle, the cessation of mortgage payments will naturally increase the likelihood of default by the developers.

The dual regulatory crackdowns in real estate and banking make sense because corruption may have permitted bankers and regulators to continue extending credit to developers. On the other hand, it may be that Xi is looking for a scapegoat. If the sector collapses, it will take much of the economy with it. As a result of the crackdowns, Xi will have a long list of people to blame. In the lead-up to the CCP’s congress, it may also be that he feels the need to legitimize his continued rule.

Finding himself incapable of fulfilling his promises of giving the people great prosperity, forcing annexation of Taiwan, and eradicating COVID, perhaps Xi is doubling down on anti-corruption to prove that he is still an effective leader.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.