January 29, 2023

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Key Economic Policies to Watch Before the 20th Party Congress in China

Chinese President Xi Jinping is expected to tighten his grip on power when the party’s national conference convenes on Sunday. The party’s 20th congress, held every five years, marks the culmination of Xi’s rise in many ways, as the leader prepares to secure a third five-year term, making him China’s most powerful ruler since Mao Zedong.

But China’s faltering economy threatens to overshadow Xi’s coronation, as the country lives in the midst of its slowest growth in decades. The International Monetary Fund on Wednesday cut its growth forecast for the world’s second largest economy to 3.2% this year, while calling for 4.4% growth in 2023, citing the volatile geopolitical situation and Beijing’s hard-line policy on the spread of the Corona virus. Factors.

“Correct reform in China has really stagnated,” Nargizsa Saledjanova, Director of China Practices for Rhodium Group, told Yahoo Finance Live (video above). “It’s not enough to roll back some of the good progress they’ve made since joining the WTO, but in areas from openness to investment to market competitiveness, we’re seeing pauses or in some cases everything bad.”

    A medical worker in a protective suit takes a swab from a resident for nucleic acid testing, after the outbreak of the coronavirus disease (COVID-19) in Shanghai, China, October 13, 2022. REUTERS/Ali Song

A medical worker in a protective suit takes a swab from a resident for nucleic acid testing, after the outbreak of the coronavirus disease (COVID-19) in Shanghai, China, October 13, 2022. REUTERS/Ali Song

No Coverage Policy

The future of China’s zero-restrictive policy remains the central focus. Since the first known cases of the coronavirus were reported in the city of Wuhan in 2019, the country has imposed the world’s strictest lockdowns, locking down entire cities and shutting down businesses and factories, while quarantining millions of people in their homes.

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The policy has slowed the economy significantly, with China’s second-quarter GDP falling 2.6% from the previous quarter, at the height of recent lockdowns in the spring, bringing major cities including Shanghai to a standstill.

but, Recently released statement Ahead of the party’s 20th congress hints that some changes may be on the horizon. The statement invokes battlefield language, describing the war against Covid as a “total war”.

“We put people and their lives first, organized an all-out war for the people against the COVID-19 pandemic and protected people’s lives and health to the greatest extent possible,” the statement read.

in its annual session China Pathfinder ReportPublished in partnership with the Atlantic Council’s GeoEconomics Center, the Rhodium Group writes that the policy has put China at a “crucial moment” when foreign companies reassess their presence in the country, and determine whether they are “investable.”

“Nothing has disrupted the Chinese economy as much as the Chinese economy’s non-proliferation policy. It is really unlikely that there will be a real kind of aggressive shift revealed at the party conference,” said Saledjanova. “But given what will happen, it will be The situation is much better for China if there is a stronger signal that the policy will stop rather than some kind of evasiveness and work its way through some kind of gradual decline.”

Security personnel form a human chain while guarding outside the Evergrande headquarters, where people have gathered to demand repayment of loans and financial products, in Shenzhen, Guangdong Province, China on September 13, 2021. REUTERS/David Kirton

Security personnel form a human chain while guarding outside the Evergrande headquarters, where people have gathered to demand repayment of loans and financial products, in Shenzhen, Guangdong Province, China on September 13, 2021. REUTERS/David Kirton

Property Sector Estimation

The structural shock in the real estate sector threatens to drive an even larger hole in the Chinese economy. The country has become dependent on the sector to drive nearly a quarter of its growth over the past decade.

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The reckoning from real estate bubbles and the ensuing developer defaults reverberated across China’s financial systems. Local governments that have long relied on infrastructure and housing investments to balance their books suddenly find themselves short of cash.

There is little expectation of a policy shift related to this key growth engine, Saledjanova said, given that caucuses are rarely catalysts for major economic policy announcements. She said any correction that follows is likely to take “years to turn into the real economy,” resulting in a prolonged period of anemic growth.

“There is no substitute for [the real estate sector]She said. “The government hasn’t really been able to create new drivers of growth that would propel China forward and be able to achieve the same kind of growth that China and observers have been able to enjoy.”

BEIJING, CHINA - JUNE 17: A photo of the logo of the Chinese ride-sharing company Didi at its headquarters & # 39;  The building on June 17, 2021 in Beijing, China.  (VCG/VCG Photography via Getty Images)

BEIJING, CHINA – JUNE 17: The logo for Chinese ride-sharing company Didi is photographed at its headquarters building on June 17, 2021 in Beijing, China. (VCG/VCG Photography via Getty Images)

organizational repression

Foreign investors will be watching with interest any hints about China’s approach to data collection and advanced technologies, at a time when large, high-growth companies have been targeted by the government.

From the sudden cancellation of Ant Group’s record IPO to the delisting of car rental giant Didi Global and the regulatory crackdown on TikTok’s parent company Bytedance, Chinese officials have taken a more hardline approach at a time of rising global competition and suspicion. these companies.

In some cases, chief executives have been called in by regulators to ensure that their loyalty and priorities rest with Beijing, not global profits.

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The internal crackdown has coincided with global efforts to control China’s technological prowess, amid concerns about the country’s growing influence in both technology and geopolitics. Just last week, the Biden administration imposed the most stringent restrictions on China’s semiconductor industry, banning all US companies from supplying chips and chip-making equipment to Chinese companies.

This coincided with growing concerns about China’s strategic partnership with Russia, and concerns about a military invasion of Taiwan.

These tensions have reduced foreign direct investment and prompted multinational companies to rethink their presence in China. in A recent member opinion poll Conducted by the US-China Business Council, 65% of survey respondents said they had lowered confidence in the Chinese market. 40% said they have halted or canceled investment projects or expansion plans in China.

“Certainly political and, in many cases, security considerations overshadowed a lot of the economic priorities,” Saledjanova said. I think no matter what happens at the 20th Party Congress, China is facing a long period of growth. And that’s because even if Chinese officials really decide to move forward with a bold new reform package of tangible structural changes, it will take years to achieve them.”

Akiko Fujita is a broadcaster and reporter at Yahoo Finance. Follow her on Twitter Tweet embed

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