For the first time since the 1997 Asian financial crisis, China has decided—albeit quietly this time—to inject a huge amount of public funds into major state-owned banks to dispel concerns about financial unrest.
The decision was made at the annual session of the National People’s Congress (NPC), China’s national legislature, that ended on March 11 after adopting a government work report and a 2025 budget plan.
In the report delivered on the opening day of the weeklong session, Chinese premier Li Qiang unveiled plans to issue RMB 500 billion (USD 70 billion) in special sovereign bonds to recapitalize major state-owned banks with public funds.
According to relevant Chinese authorities, this first injection of public funds into the banking sector in 27 years is a precautionary measure and will be implemented in stages.
The move comes as the Chinese economy remains mired in the doldrums that have followed the collapse of the real estate bubble. It is also reminiscent of what happened in Japan after the burst of its asset-inflated bubble economy in the 1990s.
The NPC session also made some other decisions to help the ailing economy. But premier Li, despite supposedly being a leader of China’s economic policies, did not use the opportunity to explain the new policy measures.
Under such circumstances, the flight of foreign capital from China will further accelerate.
Since 2024, the NPC stopped holding the premier’s customary press conference, ending a decades-long tradition of the premier meeting the press at the end of the annual session.
Such a rare opportunity for not only domestic but also foreign journalists to directly ask questions to a national leader is essential for deepening the understanding of China’s new policy measures internationally.
An expert familiar with China’s politics and economy pointed out that a press conference held in 1998 by then-Chinese premier Zhu Rongji shows the contrast with Li’s silence and “provides good food for thought on this issue.”
In 1998, the year after the Asian financial crisis broke out, China decided to issue RMB 270 billion (USD 37.8 billion) in special sovereign bonds. The funds raised through the issuance were injected into the country’s four biggest state-owned banks.
In the same year, Japan injected public funds into the troubled Long-Term Credit Bank of Japan (LTCB) and the Aozora Bank (formerly Nippon Credit Bank)—which were two of the country’s three long-term credit banks—and placed them under temporary state control. Earlier this month, SBI Shinsei Bank, the successor to LTCB, reached an agreement with the Japanese government over how to repay remaining government bailout funds.
Now, the Chinese government is preparing to inject RMB 500 billion into major state-owned banks, roughly double the amount of public funds used to recapitalize the banking sector 27 years ago.
But the situation surrounding the Chinese economy has changed significantly since then. The question is whether an injection of this amount is enough to nip future financial unrest in the bud.
The size of the Chinese economy has expanded nearly 20-fold since the second half of the 1990s thanks to rapid growth. Bank lending has also swollen.
One of the driving forces behind this rapid growth has been the real estate sector, which is said to have accounted for around 30% of China’s gross domestic product for a long time.
Local governments in China have also generated huge revenues by selling property developers the rights to use state-owned land at high prices. But after years of growth, the real estate bubble has collapsed completely.
The Chinese banking sector’s nonperforming loans continue to balloon. This means that the amount of bad loans that need to be disposed of will be much larger than that of a quarter-century ago.
Zhu was elected premier at the NPC’s annual session in March 1998. He was internationally dubbed China’s “economic czar,” as he had previously served as a vice premier in charge of economic policies.
At the conclusion of the 1998 parliamentary session, Zhu met with domestic as well as foreign journalists. The press conference was also a prelude to China’s announcement that it would inject public funds into the four biggest state-owned banks.
Zhu declared a sweeping, three-year overhaul of some 300,000 state-owned enterprises across China.
At the time, Zhu was frequently in the news and many people in the country were glued to their televisions to hear his voice. He would respond to astute questions from foreign journalists with witty answers. On one occasion, he referred to a crackdown on corrupt bureaucrats and joked that he would prepare 100 coffins—99 for corrupt officials and the remaining one for himself.
At the time, Jiang Zemin was general secretary of the ruling party and President of China, while Zhu was ranked third in the party hierarchy. Nevertheless, Jiang delegated full economic authority to Zhu, who had spent much of his career engaging in economic affairs.
The personal relationship between Jiang and Zhu was not exactly close, but Jiang gave Zhu a free hand in managing the economy because that was what was required at the time.
In fact, Zhu once served as governor of the People’s Bank of China, the country’s central bank, and was well-versed in the issues of state-owned enterprises and nonperforming loans.
Currently, premier Li is ranked second in the party hierarchy, after President Xi Jinping. Li accumulated administrative experience as the top official of Shanghai, China’s commercial hub.
But before assuming his post in March 2023, Li had no experience in managing the economy as part of the central government. He also had no way of controlling the central government’s many bureaucrats.
Unlike Zhu, premier Li, as economic czar, lacks the full authority to steer the economy, as Xi has concentrated power in his own hands as the “core” of the ruling party.
Li and other party leaders have no choice but to continue to publicly express their support for Xi’s monopoly on power. They also need to pay close attention to Xi’s intentions regarding economic affairs.
Only once has Li held a press conference with domestic and foreign journalists as premier, in March 2023, when he took office. He has been trying to keep a low profile out of consideration for his all-powerful boss—Li once served as Xi’s secretary in Zhejiang.
Given the dire economic situation amid a prolonged slump in the country’s property market, it is necessary for China to carry out measures that are more painful than the reforms implemented by Zhu a quarter-century ago.
It is not enough just to talk about a bright future symbolized by things such as the concept of “new quality productive forces” that China has come up with in recent years.
Since the autumn of 2024, China has pursued what appears to be an ambitious target of reversing the real estate market’s downturn and stabilizing it. To that end, China should have presented a radical plan to resolve the property crisis at this year’s NPC.
Without such a plan, the negative effects of the property crisis on the overall economy will only drag on, not for one to two years but for five years and possibly even longer. In a worst-case scenario, China will face the same fate as post-bubble Japan. In fact, China is already teetering on the brink of a deep deflation.
In the reading of the government work report on March 5, premier Li acknowledged that there are deep economic woes, including sluggish consumption, struggling companies, and financially strapped local governments, as well as the property market slump.
He also unveiled some aggressive measures that have not been seen for many years, such as raising the budget deficit to around 4% of GDP this year from last year’s target of 3% and boosting spending significantly.
But Li missed a great opportunity to explain and emphasize those measures to domestic and foreign journalists and convey, to people both at home and abroad, the sense of crisis he has over the ailing economy.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.