Investor Fears About Xi’s New Leadership Team ‘May Be Misguided’
According to Teneo, a consulting firm, investors’ concerns about China’s new leadership team may be unfounded, which led to a dramatic decline in Chinese stocks on Monday.
On the first trading day after Chinese President Xi Jinping appointed a new core leadership team filled with his loyalists, Chinese stocks in Hong Kong and New York plummeted, especially internet tech giants like Alibaba. In recent years, Xi has shown a strong preference for increased state involvement in the economy.
Li Qiang, Li Xi, and Cai Qi all enter the [Politburo standing committee] after heading up rich provinces where economic growth is still the top priority, according to a note from Teneo Managing Director Gabriel Wildau and a team.
Investor Fears Xi’s New Leadership Team
Within China, the Politburo standing committee is the most powerful group. Cai Qi was the party secretary for Beijing, while Li Xi led the export-focused province of Guangdong. As party secretary of Shanghai this year, Li Qiang, who is widely expected to become the next premier, oversaw strict Covid lockdowns.
Li Qiang “has extensive experience in managing some of China’s richest and biggest provincial economies,” according to analysts like Nomura’s Chief China Economist Ting Lu. The Nomura report stated, “Mr. Li has been widely regarded as a capable pro-market and pro-growth politician.”
“Mr. Li suffered some setbacks during the Omicron wave in spring this year, when the entire city of Shanghai was put under a restrictive full lockdown. However, during most of 2020 and 2021, Shanghai under Mr. Li’s governorship was perceived as a role model for achieving a reasonable balance between Covid containment and economic growth.”
Analysts also cited the elevations of He Lifeng to lead the National Development and Reform Commission and Yi Huiman to lead the securities regulator. According to Teneo analysts, He Lifeng will “succeed the retiring Liu He as vice premier and director of the party’s Central Financial and Economic Affairs Commission.”
“Though He lacks Liu’s technocratic expertise, He’s record also suggests a strong focus on economic growth,” the report said. “In an article last year, He wrote that economic development was the ‘number one task’ and the foundation and key to solving all our country’s problems.’”
This month, at the opening of the 20th National Congress of the Chinese Communist Party, Xi spoke about how China plans to prioritize “high-quality development” and “modernization” in the years to come.
Xi has stated that a prerequisite for this modernization is common prosperity or moderate wealth for all rather than just a select few. Some experts believe Beijing’s recent crackdown on internet tech giants was motivated by China’s renewed pursuit of common prosperity.
Investors don’t like what Xi Jinping just said. Chinese stocks were already -25% this year but dropped sharply after the Party Congress. Maybe it was Xi’s plan to isolate China, maybe it was his new leadership team of sycophants, maybe it was his willingness to invade Taiwan. pic.twitter.com/9S9TLYBzvR
— Arminius Capital (@ArminiusCapital) October 25, 2022
Officials in China have given indications that they plan to end the crackdown soon. According to the minutes of a July Politburo meeting, members urged the “platform economy” to continue its “healthy” development and for businesses to “complete” their necessary changes.
China’s Covid Policy
The party congress that ended over the weekend didn’t say anything about whether or not China’s strict controls on Covid will change soon. Slower economic expansion can be attributed in part to the government’s efforts to curb the business activity. Covid policy changes may occur sooner than the market anticipates, according to a note published by Bank of America China and Asia Economist Helen Qiao and a team on Monday.
“In our view, the completion of the [party congress] will enable the top leadership to move on to the next policy agenda soon — relaxing the Covid curbs,” the report said. The risk of policy mistakes that shock the economy has been cited as a reason for concern about the new group of leaders, and the analysts agree.
The group’s unity, however, “may lead to more effective policy execution,” they said.
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