Xi Jinping made an unprecedented visit to China’s central bank on Tuesday and Beijing removed Li Shangfu as defense minister two months after he disappeared and just seven months after he assumed the role.
Taken together, the news felt ominous, even as markets were likely to view Xi’s bank trip as a sign that the Party is becoming concerned enough about the economy to enact meaningful stimulus, particularly in light of news that Beijing will approve some CNY1 trillion in additional sovereign debt issuance with the proceeds earmarked for various sorts of infrastructure.
As far as anyone knows (which isn’t saying much considering how opaque the Party is), Tuesday marked Xi’s first visit to the PBoC since becoming president. He wasn’t alone. He brought along vice premier He Lifeng and an entourage of apparatchiks and functionaries.
They also visited SAFE, which was notable. Xi, sources told Bloomberg, wants to “better understand” China’s mountain of FX reserves, which officially amount to around $3 trillion, but which could be much larger. There’s rampant speculation that the reduction of China’s official US Treasury holdings in part explains the escalatory selloff at the long-end of the US curve. Although such assessments have some merit, they’re superficial and lack nuance if the unspoken claim is that China is rapidly de-dollarizing its reserves.
You’re reminded that the PBoC is under new leadership. In July, China named SAFE frontman and “three red lines” architect Pan Gongsheng as PBoC party chief, setting the stage for a reconstitution of the dual-role setup at the central bank, wherein the same person is Party secretary and governor. Yi Gang, who was left off the new Central Committee roster at the Party congress a year ago, was sidelined.
The central bank implemented a hodgepodge of small rate cuts and large liquidity injections this year to help stabilize the economy, mostly to no avail. Of course, the bank isn’t independent. Even if they had better ideas, they can only do what the Standing Committee will permit. I doubt everyone was especially excited to see Xi on Tuesday, although they surely pretended.
The Chinese economy continues to struggle. Ostensibly upbeat GDP data was eyed with skepticism earlier this month, the property sector remains in a downward spiral and the equity market last week erased the entirety of gains notched in anticipation of a re-opening renaissance that never panned out.
Officials are set to meet next week to establish a medium-term plan for the economy and there was more evidence that Beijing intends to buy up shares to put a floor under stocks. On Monday, the sovereign wealth fund said it’s buying ETFs and intends to keep buying them.
As for Li (the newly-ousted defense minister), it’s hard to say what happened. Apparently, he and a handful of subordinates were being investigated for corruption tied to the procurement of military equipment. That’s according to Reuters. He was sanctioned by the Trump administration in 2018.
Li’s ouster came four weeks after Qin Gang was removed as foreign minister for “lifestyle issues.” No explanation was given on Tuesday for Li’s removal, and no replacement was appointed. Who needs a defense minister when you’ve got a perfectly good dictator?
Preparing for a big economic stimulus?
Or preparing scenarios to deal with US financial sanctions if needed?
You decide!
I hope that the autocratic minded Americans that bemoan Fed independence etc. take notes on Erdogan and Xi’s lack of success at individually “managing” an economy.
Given the level of interference with commerce (Jack Ma to Zero Covid to Evergrande) I expect that China’s in a downward spiral (demographics too baby!) and nobody inside will dare tell the truth which will only exacerbate the implosion. (Putin, will you and your wartime economy be okay if China buys less oil?)
The smart US money already moved out or cut ties (except Apple and Tesla who are too far in to bail)… not just because of the US government but the obvious trends that they’ll lose money (either evaporated due to fake business or confiscated by the party’s last gasps).
Maybe the hardest part to fathom: China is so big and so globally intertwined this collapse could take years.
Why do autocrats and dictators never seem to understand the basics of economics and believe their will is good enough to change economic reality?
I guess because they attribute much of their success in reaching their position to said will and are unable to fathom a situation in which their will is insufficient to achieve the desired result. Plus, being surrounded by yes-men and never having to hear a “no” probably makes one believe one is able to will things into existence.