"The crash must be stopped": China's rulers are on high alert because of the economic crisis

Neue Zürcher Zeitung Germany "The crash must be stopped": China's rulers are on high alert because of the economic crisis Article by Matthias Kamp, Beijing • 8 hours • 4 minutes reading time China experts regularly ask themselves whether Chinese head of state and party Xi Jinping is still receiving all the information from those around him to make the right political decisions. Some observers suspect that bad news is no longer reaching the sole ruler. Now it is clear that at least the information on the state of the economy must have reached China's strongman. At the beginning of the week, Xi addressed his people, also to prepare them for the worst. "We must be alert to possible dangers and prepare for rainy days," said Xi in his speech on the 75th anniversary of the founding of the People's Republic. "The road ahead will not be smooth," added the president, "there will be obstacles and difficulties, even challenges such as flash floods and storms." The current situation in China cannot be described much better. According to official figures, the Chinese economy grew by 4.7 percent between April and June. However, anecdotal evidence, news from the provinces and cities, and forays into the Chinese capital paint a different and, above all, dramatic picture. Company bankruptcies, restaurant closures, salary cuts In Beijing, a number of restaurants and shops are currently closing because they can no longer cover their costs. Thanks to the never-ending real estate crisis, more and more construction companies are sliding into bankruptcy. And in many cities and provinces, authorities are cutting their employees' salaries or even cutting them altogether. Out of sheer desperation, some of the heavily indebted city administrations are apparently resorting to more than questionable measures. Reports are currently circulating that cities are arresting local entrepreneurs and only releasing them in return for a ransom payment. A restaurant in the Chinese capital, Beijing. Many Chinese people are holding on to their money and are wary of major expenses. In Beijing, many restaurants have to close because they can no longer cover their costs. Interest rates lowered Beijing's rulers are on high alert. First, on Tuesday last week, the central bank announced a series of monetary policy measures to stabilize the collapsing economy. China's monetary authorities lowered an important key interest rate and the interest rate for current real estate loans, lowered the minimum reserve ratios for banks and released funds to stabilize commercial banks and stock exchanges. Two days later, Xi called the Politburo together for a meeting. The top body does not normally discuss economic issues at its September meeting. This time it was different, which underlines the seriousness of the situation. Details are not yet known. But the members of the Politburo apparently decided on a broad-based economic stimulus program. "We must face the difficulties of the economy head-on," the minutes say, and "act decisively." The Politburo also emphasized the need for "an anti-cyclical fiscal policy." Beijing is rolling out the bazooka Many analysts see the Politburo's clear wording as a departure from the cautious stimulus measures of the past two years. "Beijing seems determined to roll out the bazooka in rapid succession," writes Lu Ting, China analyst at Nomura in Hong Kong. Shortly after the Politburo's emergency meeting, the Reuters news agency reported that Beijing was planning an economic stimulus package worth the equivalent of more than $280 billion. Beijing wants to use parts of the package to stimulate ailing consumption. The authorities apparently want to support families with more than one child with around $110 a month. The fact that Xi is supporting such measures shows how big the problems are. China's strongman is actually opposed to such gifts. He believes that this would make people sluggish and lazy and would make them lose their fighting instinct. Aid for local governments The central government is also planning to help local administrations deal with their debt problems; other parts of the package are to be used for investments. Beijing also seems determined to stabilize the real estate sector. At the Politburo meeting, it was said that the authorities would from now on strictly limit the construction of new apartments and houses. China's leadership also repeated its call for banks to support sensible construction projects by real estate developers with loans. "The crash must be stopped and stability must return," the minutes of the Politburo meeting state.