Stock market sell-off welcomes China’s new top executives

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China’s stock markets suffered one of the worst routs in years on Monday as investors reacted to news that Chinese President Xi Jinping had not only won a third five-year term but had piled levels the highest. higher government exclusively with individuals. faithful to him and his ideology.

The Hang Seng Index, which tracks stocks on the Hong Kong Stock Exchange, ended the day down 6.4%, its lowest level since 2009. Other stock indices on the mainland also fell sharply, with international investors withdrew $2.5 billion of capital from the country, the largest single-day outflow on record.

Experts have attributed the rush to exits to confirmation that China will stay on the path set by Xi for the country. This includes a “zero-COVID” policy that has led to massive lockdowns and economic disruption, as well as continued government involvement in the banking sector and the economy in general, which has left the country in a debt crisis. growing.

Also on Monday, China reported that its economy grew at an annualized rate of 3.9% in the third quarter of 2022. That was slightly higher than expected but still well below the rate needed for China to meet forecasts. government that the economy would grow. 5.5% over a full year.

The announcement of the economic growth rate was scheduled for last week but was abruptly postponed, possibly to prevent news about it from distracting attention from the Communist Party leaders’ meeting.

The Politburo shakes

That Xi broke precedent and served a third term was no surprise, but his accession was accompanied by an unexpected reshuffling of the composition of the seven-member Politburo Central Committee. Xi has replaced four members of the body, which makes all major policy decisions, with men seen as loyal to him.

“What probably shocked a lot of people was the cleanup in the Politburo standing committee,” Ian Johnson, senior fellow for China studies at the Council on Foreign Relations, told VOA. “He brought in all these people who are basically his cronies, and the people who are identified as more pro-market didn’t get seats and were pushed out.”

Among those raised on the committee was Li Qiang, Shanghai’s Party secretary, who played a major role in that city’s controversial COVID-19 lockdown for months earlier this year. Ding Xuexiang, Xi’s private secretary and head of the powerful General Office of the Central Committee, also made his ascent.

Among those who did not return for another term on the committee was Hu Chunhua, considered one of the most liberal economic thinkers in the Chinese leadership, and once seen as a potential successor. of Xi. Hu’s departure made it clear that there would be little pushback against Xi’s economic policies in the newly formed committee.

“As policy ties increasingly trump technocratic experience, the quality of policy implementation may decline,” Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note on Monday. to the company’s customers. “And dismantling remaining checks and balances will make it harder for the Party to change course if Xi Jinping’s political agenda falters.”

Focus on safety

In his remarks to the assembled Communist Party members at the start of the multi-day meeting, Xi made little headway in terms of announcing new initiatives or modifying existing ones.

He praised the country’s response to the pandemic and indicated no intention to deviate from this policy. He touted China’s extraordinary economic growth over the previous 10 years, during which the size of the economy more than doubled.

Residents wear face masks and wait at a bus stop in Beijing’s central business district on October 24, 2022. China’s economic growth accelerated in the past quarter but remains among the weakest in decades decades as the ruling Communist Party attempts to reverse a crisis.

While Xi Jinping promised continued economic reforms and “opening up” to the rest of the world, he also stressed that state-owned enterprises would continue to play a major role in the economy and that private sector development would be “guided by the Communist Party.

One of the main themes of his remarks was national security. He painted a picture of a Chinese nation beset by threats from within and without, vowing to “resolutely safeguard the security of Chinese state power, systems and ideology, and strengthen security capabilities in key areas”.

Disappointed business community

“We were hoping for signals about the need to reset relations with the United States. Instead, it appears that uncertainty will persist and could worsen,” said Doug Barry, vice president of US-China Business. Council, to VOA in an email exchange. “The next inflection point could come if Presidents Biden and Xi meet in Bali next month, which would be the perfect time to announce confidence-building measures, with neither person accused of being soft on the world. ‘other.”

However, Barry said, positions in Washington and Beijing appear to be hardening, reducing the chances of finding a near-term compromise.

“The good news is that trade between the countries remains good, although both imports and exports are down from last year’s totals, likely due to COVID and the slowdown in the Chinese economy,” he said. said Barry. “Now that the Chinese leadership is in place, we will soon have a better idea of ​​what the future looks like.”

Realization of the market

Johnson said Monday’s stock market backlash may have been the result of a somewhat belated recognition that China is unlikely to change course and become more market-friendly in the foreseeable future.

Over the past 30 years, he said, there was a broad assumption among investors that although China was an authoritarian state, “it was run by people who understood how things work in the world. internationally, and they would come up with relatively investor-friendly policies.”

Now, however, that assumption has “evaporated”, Johnson said.

“Beijing always talks about reform and trying to open up to the outside world and all that kind of stuff,” he said. “But there is no evidence of that.”

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