China redoubles first-aid for economy with support for banks and workers

China is redoubling its first-aid for its economy, targeting banks, workers and poor families as the ruling Communist Party marks the 75th anniversary of the founding of the People’s Republic.

Unconfirmed reports by the South China Morning Post and Bloomberg said the government plans to spend about CN¥1 trillion yuan (US$142 billion) on recapitalising six big state-owned banks. The reports citing unnamed people familiar with the situation follow this week’s statement by Li Yunze, head of the National Financial Regulatory Commission, that regulators would increase capital at six large banks.

Defaults by real estate developers following a crackdown several years ago on excessive borrowing for property projects have weighed on the banking sector, prompting the latest bailout.

Banks’ interest margins and profits have shrunk, so “it is necessary to coordinate various channels such as internal and external channels to replenish capital,” Li told reporters in Beijing.

President Xi Jinping and other top leaders held a quarterly meeting on the economy last Thursday, state media said, and acknowledged “some new situation and problems” had emerged. They promised to focus on support for new college graduates, migrant workers, the unemployed, elderly and disabled.

The capital increase for the banks and promises of other measures were a second flurry of stimulus for the world’s second-largest economy as it struggles to regain momentum after the COVID-19 pandemic. For a second time last week, financial markets rejoiced.

The raft of new measures to pump up growth began Tuesday, September 24, when officials from the central bank and other government agencies held a news conference in Beijing announcing various measures to help revive China’s ailing property sector and prop up financial markets.

Those measures included lower bank reserve requirements, reduced interest rates and smaller minimum down payments for some mortgages.

The statement of the ruling party’s powerful Politburo, issued after the meeting Thursday, called for “additional policies” for new problems that have cropped up, Julian Evans-Pritchard of Capital Economics said in a commentary.

“However, it remains unclear if this will include the large-scale fiscal support needed to stabilise growth,” he said.

China’s leaders appeared determined to show they were taking action to restore confidence in the economy on the eve of the October 1 National Day holiday, 75 years after the communists took power in 1949.

The government also announced special “living allowances,” or cash handouts, for the poor ahead of National Day observances. A notice from the Civil Affairs Ministry did not say how much would be paid. Although subsidies to ordinary people are uncommon, the ruling Communist Party sometimes marks special occasions with payments to families in difficulty.

“We must look at the current economic situation comprehensively, objectively and calmly, face up to difficulties, strengthen confidence, and effectively enhance the sense of responsibility and urgency to do a good job in economic work,” said the statement issued after the Politburo meeting.

China is marking the 75th year of Communist Party rule as economic challenges and security threats linger over the massive state.

No festivities were announced for the occasion Tuesday, save for a flag-raising ceremony at Tiananmen Square, with an honour guard marching from the entrance of the sprawling palace that in past centuries was the home of Chinese emperors. The entirely state-controlled media ran constant reports on China’s economic progress and social stability, with no mention of challenges ranging from a declining birth rate to the disruption in supply chains that has harmed the largely export-driven economy.

Commemorations were also held in the former British colony of Hong Kong and Portugal’s former territory of Macao, both of which returned to Chinese sovereignty in the late 1990s in a key indication of Beijing’s determination to overcome what it has called a “Century of Humiliation”.

In recent decades, China has mounted military parades and displays of the country’s economic might only at the turn of decades, such as for the 60th and 70th anniversaries.

The world’s second largest economy has struggled to regain momentum after the COVID-19 pandemic.

A prolonged property slump led to a spillover effect on other parts of the economy, from construction to sales of home appliances. Last week, China announced a slew of measures to boost the economy, including lower interest rates and smaller down payment requirements for mortgages.

Party leader and head of state Xi Jinping has largely avoided overseas travel since the pandemic, while continuing with his purges at home of top officials considered insufficiently loyal or being suspected of corruption or personal indiscretions.

“The road ahead will not be smooth, there will definitely be difficulties and obstacles, and we may encounter major tests such as high winds and rough seas, or even stormy waves,” Xi warned during a banquet on the eve of the anniversary.

“We must be vigilant in times of peace, plan ahead, and rely closely on the entire Party, the entire army, and people of all ethnic groups across the country” he said. “No difficulties can stop the Chinese people from moving forward.”

The anniversary also comes as China is facing growing frictions with neighbours including Japan, South Korea and the Philippines over territorial claims and their close relationships with Beijing’s chief rival, the United States.

The Communists under Mao Zedong seized power in 1949 amid a civil war with the Nationalists, also known as the KMT, led by Chiang Kai-shek, who shifted their political, economic and military power to the now self-governing island democracy of Taiwan.

Beijing continues to insist Taiwan must be annexed under Communist Party rule, by force if necessary, while the US has provided arms to ensure its defence.

China, meanwhile, has involved itself in disputes over its claims to most of the South China Sea and uninhabited islands held by Japan, the Philippines, Vietnam and other neighbouring nations.

China’s military buildup and its recent launch of a nuclear capable ballistic missile into the Pacific Ocean have raised concerns about a possible conflict.

At home, Xi has made himself effectively leader for life by ending term limits and extending his power over key government and party bodies. China allows no competitive elections and the party retains near total control over the media that informs its 1.4 billion people.

– AP