Investment Strategies

China's Economic Challenge As Xi Continues In Power

Editorial Staff 25 October 2022

China's Economic Challenge As Xi Continues In Power

Taking up an unprecedented third term in power, the Chinese leader and his colleagues have a lot to consider, such as debt-laden real estate sector, flagging economic growth and concerns about a potential global recession.

Chinese leader Xi Jinping has been re-installed to his post for an unprecedented third term, consolidating his power over the ruling Communist Party. But he faces severe challenges, including the task of reviving the world’s second-largest economy while navigating a way from its zero-Covid policy.

Official data showed that the economy rose by 3.9 per cent – a pace that would have Western politicians drooling with envy but not fast enough for a country battling to become a fully modern economy. Financial markets fell on the data. The Hang Seng Index fell 6.4 per cent on Monday. Shares in mainland China were also hit.

The latest figures showed that the Chinese economy chalked up growth of just 3 per cent for the first nine months of 2022, and it is likely that it will miss its full-year target of 5.5 per cent.

In the short term at least, the Xi administration may dial back on regulatory crackdowns on certain sectors, following the restrictions on tech and areas such as education last year, in order to give the economy breathing space, Alec Jin, investment director, Asian Equities, at abrdn, said in a note.

“Overall the messages were supportive of a general reduction of immediate near-term regulatory pressure,” Jin said.

Referring to Xi’s speech at the weekend, Jin said there is a picture of “overall continuity in the economic policy mix.”

Jin noted that there were overtures to the private sector made during the [Xi] speech. The role of markets in resource allocation was acknowledged, he said.

“Overall the messages were supportive of a general reduction of immediate near term regulatory pressure,” he said.
Another point is that Xi wants to encourage Chinese industrial self-sufficiency at a time when global supply chains, and pressures from the US on China, are forcing China to build domestic resources.

“Economics and growth still comes first but where security, equality and self-sufficiency have been elevated,” Jin said.

“In this context, we see the drive towards self-sufficiency and localisation as gaining in importance, and [this is] likely to accelerate investments in areas such as renewable energy and domestic semiconductors,” he said.

Commenting on China’s third-quarter GDP figures, David Chao, global market strategist, Asia-Pacific (ex-Japan) at Invesco, said: “China’s quarterly GDP and monthly economic data reveal a bumpy path towards an economic rebound.”

Chao noted: “The bright spot in the data came from industrial production, which accelerated to 6.3 per cent year-on-year in September due to a surprisingly resilient export environment.”

“I think it’s possible for manufacturing and exports to do well for the rest of the year though the global economy is facing recession pressures, which could dampen the appetite for Chinese products next year,” Chao said.  

“I continue to expect growth to improve sequentially for the final quarter of this year, though virus disruptions could continue to affect household demand and the property market has yet to find a bottom,” he added.

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