Currently, major ports such as Shanghai, Ningbo, and Guangdong are filled with empty shipping containers, indicating poor performance in China's export trade. (Video screenshot)
[People News] Since September of this year, the Chinese Communist Party (CCP) has abruptly shifted its economic policies. Previously focused on "stabilizing fundamentals and avoiding massive stimulus," the CCP suddenly pivoted to a large-scale economic stimulus model, employing a three-pronged approach of monetary, fiscal, and industrial policies. From Politburo meetings to briefings by central government ministries, culminating in the November 8 announcement by Finance Minister Lan Fuyan of a 12 trillion yuan "fiscal triple-arrow" strategy, the CCP has confidently proclaimed that the economy will recover, the real estate market will stabilize and rebound, and GDP growth will meet the 5% target.
But what are the actual results of these large-scale stimulus policies?
First, let's take a look at the real estate market trends. In November, the real estate market turned from red to black.
According to data from CRIC, in November 2024, the monthly sales amount for 50 real estate companies totaled 274.2 billion yuan, a month-on-month decrease of 18% and a year-on-year decrease of 15%, with a drop of 18 percentage points compared to the previous value. Sales area amounted to 15.72 million square meters, down 13% month-on-month and 13% year-on-year, with a decrease of 12 percentage points compared to the previous value. Since June 2023, year-on-year sales have significantly declined. While policy interventions at the end of September spurred a temporary rebound in October's year-on-year sales figures, November saw marginal declines again. Data from the China Index Academy shows that in November 2024, sales revenue for the top 100 real estate companies dropped 9.46% year-on-year and 18.62% month-on-month.
In other words, despite the CCP's efforts since the Politburo meeting on September 26, where it emphasized "stabilizing and restoring the real estate market," and measures such as lowering down payment requirements and loan interest rates for first-tier cities at the end of September, as well as the unprecedented "stabilization package" announced jointly by the Ministry of Housing and Urban-Rural Development, the Ministry of Finance, and other central departments on October 17 (including lowering rates on existing housing loans), these policies only managed to sustain the market for about a month, akin to a short-lived boost from a stimulant injection.
Oddly enough, as reported by several Chinese media outlets, including Yicai, some regions have recently begun adjusting the lower limits for housing loan rates. In many cities, newly issued mortgage rates have risen back to "3%-plus," with some cities making two adjustments within a single month. After the Loan Prime Rate (LPR) dropped by 25 basis points in October to 3.60%, some cities briefly saw mortgage rates fall below 3%.
Between late October and early November, cities including Wuhan, Changsha, Nanjing, Guangzhou, Foshan, Suzhou, Wuxi, Hangzhou, and Dongguan successively raised mortgage rates, pushing first-home mortgage rates back above the "3% threshold." By the end of November, a widely circulated screenshot on Chinese social media claimed that as of November 30, the minimum mortgage rate for first-home loans issued by major commercial banks in Zhejiang Province would be no less than 3.1%.
What is going on here? Is the policy being tightened again? Some commentators describe the CCP as "desperately frugal," pulling back its bait even before the fish are hooked. Has it really begun to take back the incentives?
According to insiders from the banking industry, considering costs related to funding, risk, operations, capital, and taxes, the break-even point for most banks is around 3.2%. This explanation appears logical. In recent years, as the CCP sought to stimulate the economy, bank interest rates were repeatedly lowered, squeezing net interest margins and reducing profitability. This has led to salary cuts and layoffs in the financial sector, making banking jobs less attractive. Housing loans are typically regarded as high-quality assets for banks. To align with the CCP's policy goals of stabilizing the real estate market, banks were compelled to lower mortgage rates. However, this increases operating risks for banks, underscoring that the CCP's stimulus policies are unsustainable and scattershot—patching one issue while another emerges.
Recently, Goldman Sachs released a research report on China's real estate market. The report predicts that from now until the end of 2025, Chinese property prices may continue to decline by 20% to 25%, and it may not be until 2027 that the market truly stabilizes.
Second, China’s long-term government bond yields have fallen below those of Japan for the first time, signaling a potential slide into prolonged deflation similar to Japan’s.
According to a Financial Times report on November 29, the yield on China’s 30-year government bonds has dropped from 4% at the end of 2020 to 2.21%, marking the first time it has fallen below Japan’s. This development has raised concerns among investors that the world’s second-largest economy could face a deflationary trap akin to Japan’s experience.
For years, Japan’s long-term bond yields remained below 1%. However, following the implementation of "Abenomics" in 2012 and the Bank of Japan’s adoption of "quantitative and qualitative easing" (QQE) and yield curve control (YCC), Japan managed to exit decades of deflation and begin normalizing its monetary policy. As a result, its long-term bond yields have risen to 2.27%.
Long-term government bond yields are often considered an indicator of expectations for a country’s long-term economic performance. When investors lose confidence in a country’s economic outlook, they shift funds into long-term government bonds as a safe haven, driving bond prices up and yields down. Conversely, when long-term economic prospects are optimistic, investors move away from bonds into the real economy or stock markets, causing bond prices to fall and yields to rise.
In October, China’s core CPI (excluding food and energy prices) rose only 0.2% year-on-year. In contrast, Japan’s core inflation reached a six-month high of 2.3%. On a month-on-month basis, China’s CPI fell 0.3% in October. The data for China’s producer price index (PPI) was even more dismal, showing a 2.9% year-on-year decline and a 0.1% month-on-month drop.
The CCP has heavily invested in high-tech industries, green energy, and electric vehicles, and it has promoted exports of its "new three" products to stimulate long-term economic growth and avoid deflation. However, China’s state-led investment model, which lacks market-driven adjustments, has led to severe overcapacity. Additionally, Chinese exports have faced tariff barriers from the United States, the European Union, and Canada.
As a result, investors believe that deflation has become deeply entrenched in the Chinese economy and that fiscal and monetary policies alone are unlikely to resolve the issue. This suggests that yields could decline even further.
Third, Foreign Investors Are Losing Confidence in China.
According to data from China’s Ministry of Commerce, the actual use of foreign capital in the first nine months of 2024 totaled 640.6 billion yuan, representing a year-on-year decline of 30.4%.
After Donald Trump’s election victory, he vowed to escalate the trade war with China. Recently, Trump stated that he would immediately impose an additional 10% tariff on Chinese goods upon assuming the presidency. The U.S. Congress is also pushing legislation to revoke China’s permanent normal trade relations (PNTR) status, which would subject China to the same tariff levels as countries like North Korea and Cuba, at 42%. During Trump’s first term, tariffs on certain Chinese imports had already reached 20%. Combined, these measures could push tariffs on Chinese goods to as high as 72%. Trump also recently warned that if BRICS countries attempt to establish an alternative to the U.S. dollar as an international settlement and reserve currency, they would face a 100% retaliatory tariff from the U.S.
If the U.S. follows through with these aggressive tariff measures, the impact on foreign investment in China would be profoundly negative. With domestic demand already weak, additional tariffs would deliver a severe blow to China’s economy, effectively cutting off a critical lifeline.
Goldman Sachs predicts that China’s GDP growth will decline from 4.9% in 2024 to 4.5% in 2025. Real estate sales are expected to drop by 9%, with sales area declining by 4% and prices falling by another 5%. Morgan Stanley forecasts China’s real GDP growth will slow to 3% in 2025, with CPI growth dropping to 0.1%. UBS projects that China’s real GDP growth will decelerate to 4.0% in 2025, with nominal GDP growth slowing to 3.8% and price levels continuing to decline.
China’s overall economic outlook, coupled with the CCP’s inconsistent, unpredictable, and often underwhelming policies, has deterred foreign investors from engaging further in the Chinese market.
Fourth, Prominent Economists Are Pessimistic About China’s Economy.
On November 29, prominent Chinese economist Yu Yongding stated during a closed-door meeting that the Ministry of Finance’s announcement of a 12 trillion yuan fiscal stimulus on November 8 is an empty promise. The reason, he explained, is that the central government has not provided real funds to help local governments manage their debt burdens. Instead, it has merely relaxed borrowing limits, leaving local governments to figure out how to raise the money themselves. Over five years, this plan would only reduce the debt interest burden for provinces by a total of 120 billion yuan annually on average, equating to less than 0.1% of GDP each year.
On November 24, Fu Peng, chief economist at Northeast Securities, delivered a widely circulated two-hour, 20,000-word keynote speech at the HSBC Private Wealth Client Forum in Shanghai titled "2024 Year-End Review and 2025 Outlook: Hedging Risks vs. Soft Landing." Fu's speech sharply criticized systemic issues within China's economy and governance structure, predicting continued economic decline.
Fu highlighted several significant challenges facing China’s economy: Insufficient Effective Demand: Since 2019, China’s effective demand has continuously declined, recording negative growth for the first time in 2024, signaling deep structural adjustments. Decline of the Middle Class: The shrinking consumption power of the middle class is one of the primary reasons for economic contraction, creating a significant macroeconomic impact. Loss of Demographic Dividend: Aging populations and declining birth rates have led to weaker domestic demand, presenting the greatest long-term challenge for development. Ineffectiveness of Leverage Policies: Traditional debt-financed strategies can no longer drive economic recovery. Widening Income Inequality: Without redistributive measures to narrow the income gap, domestic demand and long-term growth will remain suppressed.
On November 29, Professor Xu Chenggang of Stanford University’s China Economics and Institutions Research Center delivered a speech at the "2024 Contemporary China Studies International Symposium" in Taipei. He argued that both China’s "Reform and Opening-Up" policy over 40 years ago and its subsequent regression in the past decade were driven by the CCP’s need to preserve authoritarian control.
Professor Xu noted that the CCP has always maintained deep suspicion of private property and external influences. The CCP prevented the development of institutions leaning toward democratic constitutional governance and, by around 2005, identified preventing "peaceful evolution" and "color revolutions" as more important than economic growth.
By 2007, it concluded that "stability maintenance is more important than economic development." Under Xi Jinping, efforts to achieve comprehensive societal control required extensive assistance from all levels of government. Central mandates began prioritizing metrics beyond economic growth, introducing regressive policies seen as safeguarding authoritarianism. "Reforms launched to save the authoritarian system ultimately ended with its preservation."
Professor Xu’s insights into China’s economy and governance reveal a deeper understanding of the structural and ideological issues at play. His analysis serves as a thought-provoking reference for both domestic and international investors to evaluate China's economic prospects.
(Original publication by People News)
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