China’s President Xi Jinping has tried hard explaining his governing philosophy to his comrades. His musings on everything from the economy to space missions are required reading within the sprawling bureaucracy. Politicians, civil servants, and state-owned enterprise employees must attend regular study sessions on Xi Jinping Thought, read his books, and submit papers on what they’ve learned.
There’s now evidence, however, that spending hours each week poring over Xi’s sayings has not brought his underlings any mental clarity. The autocratic government, which in the past had acted decisively and transformed China into an economic powerhouse, has lost its operational efficiency.
China’s failed attempt to rescue its housing sector, which accounts for about 20% of gross domestic product, is a prime example. In more than half of tier-2 and tier-3 cities, existing home prices have fallen at least 15% from their peak. As developers start a new wave of corporate defaults, construction of about 20 million pre-sold homes is being delayed, according to Nomura Holdings Inc.’s estimates.
The late-July Politburo meeting, attended by Xi and his top aides, opened the door to large-scale policy measures. Xi’s mantra that “housing is to be lived in, not speculated on,” which had been consistently mentioned in the Politburo statements since 2019, was left out. Rather, the read-out urged a timely response to address “great changes” in the real estate market.
What ensued was a lack of policy follow-throughs. In mid-August, when the People’s Bank of China cut its one-year lending rate, it opted not to extend easing to the five-year loan prime rate, the benchmark used to price mortgages. Local authorities did not remove home-buying restrictions either, unsure how far Beijing wanted them to go. “No first-tier city wanted to take the political risk,” noted Gavekal Dragonomics’ analyst Rosealea Yao.
The tipping point came on Aug. 30, when Guangzhou became the first tier-one city to loosen financing for home buyers. While that provided cover for others to follow suit, it was too late. Alarmed by unfinished homes and slumping prices, consumers turned their back on real estate. By September, 30% considered gold as the best investment option; property got only 7% of the vote, according to a CLSA survey.
Home sales worsened in October. By now, short of an audacious large-scale quantitative easing, it is unclear if Beijing has any tools left to rescue the housing decline.
As far as Xi might be concerned, he delivered his message. By removing his housing mantra in July, he essentially told his underlings to go ahead and ease. So why didn’t they implement his instructions in a timely manner? Everyone in the bureaucracy knows how important property is to the economy. Over 70% of Chinese households are homeowners, while municipalities at one point collected one-third of their income via land sales.
One explanation is fear. No one wants to draw the spiritual leader’s ire. Xi’s anti-corruption crusade is regaining traction this year, poised to possibly ensnare a record number of senior cadres. Officials were investigated for many offenses, from making irrational investments to issuing too much municipal debt.
By comparison, devoting many work hours studying Xi Thought is not only politically correct, but a great excuse to “lie flat.” After all, governing by doing nothing is an ancient Taoist wisdom. Xi, who regularly quotes sages of the past, would surely approve?