Mir wäerten net drécken seet Li Keqiang - Trustnodes

China’s Premier Li Keqiang has told a gathering of entrepreneurs in Beijing, organized by the World Economic Forum, that China won’t overprint.

“We will not introduce super-large stimulus measures, over-issue money, or advance the future in order to achieve excessive growth goals,” Keqiang said according to a rough translation of state media.

The Prime Minister said that downward pressure on the economy have suddenly increased, and major indicators fell deeply in April.

He claims however that the economy stabilized and rebounded in June, when the latest Donnéeën by CEIC show that China’s house prices fell another 7.5% in June following an 8.8% decrease year on year in May.

This housing crash may spread to the banking sector where troubles have been brewing since 2019 in small local banks.

China’s yuan in addition has been weakening, heading to 7 from 6.3 per usd as interest rates rise in America, making dollar based debt more difficult to service.

Combined with a slowdown of the economy to just 0.4% growth in Q2 2022, the lowest since data began 30 years ago excluding Q1 2020, it isn’t clear whether this claim by Keqiang that they won’t “over-issue money” is not yet another sign that the country is in the grip of euphoria.

The Great Congress

Much of this comes months before an expected coronation of China’s president Xi Jinping to an historic and unprecedented third term.

Events have favored his decade old rule with Xi taking over just as US banks collapsed, something that proved a great boon to China because almost all foreign investment headed there.

Businessman and former US President Donald Trump, however, thought China was taking much advantage of both the US specifically and of the World Trade Organization.

A high stakes two years long trade negotiation between China and US unravelled, with US-China trade war, tech war, everything ‘war,’ dominating headlines.

In that context, a highly infectious and deadly disease for the elderly took root in China where initially it was allowed to spread by the local government, and then by the national government too which did not close down international air travel.

In the election of 2020, some took this as a sign that the trade negotiations had gone badly, and so the people of US fired Donald Trump.

Whether Xi takes any blame, is a matter for history. In the present, as the head of state, the buck stops with him.

A return of Xi therefore may maintain an uneasy situation where foreign investment is concerned, with no easy room to restart relations because whatever happened and whoever is to blame, it happened on his watch.

In addition without a change of leadership it is not easy to see how foreign businesses can have any confidence they won’t be the next Jack Ma. So while Keqiang promises the opening of the economy and reforms will continue, it is unclear why that should be expected under the current leadership when the opposite has been occurring.

Making this October gathering of China’s political elite potentially era defining, at least for China, as it echoes very much Putin’s approach in removing the term limit safeguards and we have seen where that approach ended.

It also happens that it is precisely when Putin came for a third term, that Russia’s economy began going downhill.

The removal of term limits by Xi also coincides with a slowdown in China’s economy. Once, and if, that becomes official this October, that slowdown may get worse simply because there might no longer be a rule of law, but a rule of Xi.

For the definition of a dictator in the modern era must objectively be that where there are term limits, the person in power breaches them.

And once this power has no political limits, it is easy to see why the person in charge might think they are not subject to the rules of debt, leverage, and housing crashes.

Because ‘we won’t print’ may well be the ‘no more boom and bust.’ Not least because China has printed, with their government crossing the 60% debt to GDP ratio.

That seems to be a level, according to historic data, at which stagnation starts creeping in because debt starts over-running growth.

And so you get a deleveraging. To deal with it, you have to print, unless you want to directly raise taxes.

But, these things take time. It took one year from the first bank run in a century in Britain at Northern Rock in 2007, to the full on crash in September 2008.

On the other hand, much has crashed already with the question now more whether China’s economy can fully recover.