China’s police warn fearful investors not to protest

Michael SmithNorth Asia correspondent

Aug 18, 2023 – 4.16pm

China’s police have reportedly warned investors facing financial losses against making public protests, in stepped up efforts to clampdown on criticism and head off any social unrest over the country’s increasingly precarious financial health.

With concern growing China is on the brink of a financial crisis, Xi Jinping’s government has doubled down on efforts to contain negative economic data. Authorities this week stopped publishing data on the rising youth unemployment rate, while land sales figures were also missing from regular economic updates.

Police officers block protesters rallying about zero-COVID policies in Beijing in November 2022.  Ng Han Guan

Investors who put money into troubled financial giant Zhongzhi said security police had visited them at their homes this week, urging them to avoid public protests, Bloomberg reported. Investors who received the visits come from a wide area of China, including from Beijing.

A subsidiary of investment giant Zhongzhi failed to repay trust products to at least two listed companies, it emerged this week, raising fresh fears about China’s opaque shadow banking sector.

Concern about China’s economic stability again escalated on Friday after the country’s most indebted property developer Evergrande Group sought Chapter 15 bankruptcy protection in New York. The move protects the developer from creditors in the US while it works on a restructuring deal elsewhere.

At the same time, another big private developer, Country Garden, missed two debt repayments which also triggered fears about its financial viability. Country Garden has major housing developments in Australia.

Experts said rising sensitivities from the Chinese authorities about the state of the economy reflected growing concern about the government’s ability to contain the country’s property, debt and unemployment problems.

“The ship is not sinking, but it is taking on water,” Drew Thompson, a visiting research scholar at the Lee Kuan Yew School of Public Policy at the National University of Singapore, said.

“This feels different. This isn’t like the tail-end of COVID when people protested. This is a tough one to fix. Is this a Lehman moment or a 1932 moment?

“It is more a question of scale than whether or not it is going to happen, and Chinese policies are exacerbating the crisis that is emerging by either cooking the books, not releasing information, or covering up unflattering data.”

China’s central bank this week cut rates to support the economy, temporarily helping stave off a decline in iron ore prices, but economists said Beijing needed to take more aggressive action to maintain economic growth. The Chinese government has a growth target of about 5 per cent this year.

Losses at Evergrande and Country Garden have triggered new fears about the risk of contagion from the property sector into the wider economy. Those concerns were compounded this week when two clients said Zhongrong, which is partly owned by Zhongzhi, failed to repay trust products.

Zhongzhi manages more than 1 trillion yuan ($216 billion) of assets and there have already been small-scale protests from investors in its wealth management products.

Protests by investors

China has a successful history of clamping down on protests, including public demands to end its zero-COVID policies late last year. For years, there have been protests by investors who have lost money in failed companies which are quickly shut down by police.

The economy has also long been a politically sensitive issue, with investors and stockbrokers saying they could no longer say anything negative about China’s financial health in public.

Experts said while there was the potential for widespread protests from investors in uncompleted apartments and now the shadow banking sector, the government would crack down on them hard.

“There could be outbursts of discontent and street protests, but those would not be sufficient to present a lethal threat to the regime. Still, it looks like a slow but relentless (economic) deterioration,” Willy Lam, a senior fellow at The Jamestown Foundation, told AFR Weekend.

“If you use the metaphor of a cancer spreading. China is still a 10-foot tall giant, but the cancer cells are spreading. It will be a very messy situation.”