Key economic policies to watch ahead of the 20th Party Congress of China

Chinese President Xi Jinping is expected to tighten his grip on power when China’s National Party Congress convenes on Sunday. A spectacle that takes place once every five years, the 20th Party Congress marks the culmination of Xi’s rise in many ways, with the leader poised to secure a third five-year term, making him arguably the ruling China’s most powerful since Mao Zedong.

But China’s faltering economy threatens to overshadow Xi’s coronation, with the country in the midst of its slowest growth in decades. On Wednesday, the International Monetary Fund (IMF) lowered its growth forecast for the world’s second-largest economy to 3.2% this year, while calling for 4.4% growth in 2023, citing a volatile geopolitical situation and the Beijing’s hardline policy on covid among factors

“China’s partial reform has really stalled,” said Nargiza Salidjanova, director of China practice at Rhodium Group, speaking to Yahoo Finance Live (video above). “It’s not enough to undo some of the good progress they’ve made since joining the WTO, but in areas ranging from openness to investment to market competitiveness, we see a pause or, in some cases, all wrong.”

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

ZERO-COVID POLICY

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

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

However, a recent statement issued ahead of the 20th Party Congress hints that some changes may be on the horizon. The statement invokes the language of the battlefield, calling the fight against covid ‘a total war’.

“By putting people and their lives first, we stage the people’s all-out war against the COVID-19 pandemic and protect people’s lives and health to the greatest extent possible,” the statement read.

In its annual China Pathfinder report, published in association with the Atlantic Council’s Center for Geoeconomics, the Rhodium group writes that the policy has placed China at a “tipping point” when foreign companies are reassessing their presence in the country and determining whether it is still “invertible”. .”

“Nothing has disrupted China’s economy like the zero COVID policy. And it is highly unlikely that a real aggressive exchange rate will be unveiled at the party congress,” Salidjanova said. “But looking ahead to what happens, it will be a much better situation for China if there is a stronger signal that the policy will stop rather than some kind of cheating and slurring through a kind of gradual decline.”

Security personnel form a human chain as they guard outside the Evergrande headquarters, where people gathered to demand repayment of loans and financial products, in Shenzhen, Guangdong province, China September 13, 2021. REUTERS/ David Kirton

Security personnel form a human chain as they guard outside the Evergrande headquarters, where people gathered to demand repayment of loans and financial products, in Shenzhen, Guangdong province, China September 13, 2021. REUTERS/ David Kirton

CALCULATION OF THE REAL ESTATE SECTOR

A structural shock to the real estate sector threatens to create an even bigger chasm in the Chinese economy. The country has come to rely on the sector to power roughly a quarter of its growth over the past decade.

A reckoning caused by the property bubbles and developer defaults that have occurred has reverberated through China’s financial systems. Local governments that have long relied on infrastructure and housing investments to balance their books have suddenly found themselves short of funds.

Salidjanova said there is little expectation of a change in policy related to this key driver of growth, given that party congresses have rarely been the trigger for major economic policy announcements. Any course correction that follows is likely to take “years to trickle down to the real economy,” leading to a prolonged period of anemic growth, she said.

“There is no substitute for [the real estate sector],” she said. “The government hasn’t really been able to establish new growth drivers that will propel China forward and can deliver the same kind of growth that China and observers have been able to enjoy.”

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

BEIJING, CHINA – JUNE 17: Chinese ride-sharing company Didi’s logo is displayed on its headquarters building on June 17, 2021 in Beijing, China. (Photo by VCG/VCG via Getty Images)

REGULATORY AGGRESSION

Foreign investors will be watching for any hint of China’s approach to data collection and advanced technologies, at a time when major high-growth companies have come under attack from the government.

From the sudden cancellation of Ant Group’s record-breaking IPO to the US delisting of ride-sharing giant Didi Global and the regulatory crackdown on TikTok’s parent company Bytedance, Chinese officials have adopted a harsher approach at a time of increased global competition and skepticism towards these firms.

In some cases, regulators have summoned chief executives to reportedly ensure their allegiance and priorities lie with Beijing, not global profits.

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

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

Those tensions have caused a drop in foreign direct investment and prompted multinational companies to rethink their presence in China. In a recent member survey conducted by the US-China Business Council, 65% of respondents said they had lost confidence in the Chinese market. 40% said they were pausing or canceling investment projects or expansion plans in China.

“It is certainly true that political considerations and, in many cases, security considerations have overridden many of the economic priorities,” Salidjanova said. “I think that regardless of what happens at the 20th Party Congress, China is facing a prolonged period of growth. And this is because even if Chinese officials do decide to engage in a new aggressive reform package of tangible structural changes, it will take years to realize.”

Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita

Click here for the latest economic news and economic indicators to help you with your investment decisions.

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app to Apple either Android

Follow Yahoo Finance on Twitter, Facebook, Instagram, flip board, LinkedInY Youtube

Leave a Comment