Economy

Analysis-Xi’s next premier faces a difficult task in restoring the Chinese economy by Stocksak


© Stocksak. FILE PHOTO. Li Qiang, a member of the new Politburo Standing Committee, meets the media at the Great Hall of the People in Beijing on October 23, 2022, following the 20th National Congress of the Communist Party of China. REUTERS/Tingshu Wang

By Kevin Yao

BEIJING (Stocksak), – China’s next premier will have little choice but to increase stimulus to revive an economy ravaged in COVID-19. This was according to policy insiders as well as analysts on Monday. Markets were rattled by the announcement of Xi Jinping’s new leadership team.

Sunday’s confirmation of Xi for a record-breaking third term was a milestone. Xi also introduced a Politburo Standing Committee stacked full of loyalists. This included Li Qiang, the chief of Shanghai Communist Party, who now stands to succeed Li Keqiang.

Li Qiang will drive growth in order to prevent widespread job losses which could undermine social stability at a moment when Xi is putting more emphasis upon security.

He will inherit the second-largest economy in the world. It has been dragged to its knees by COVID curbs, a deepening real estate crisis, and hopes for meaningful reforms have waned as the ruling Communist Party tightens its grip.

Monday saw a plunge in Hong Kong stock prices, Chinese stocks plummeted, and the yuan fell after the new China’s top governing body raised concerns that Xi would intensify his ideology-driven policies at a cost to growth.

“The COVID curbs won’t be lifted sharply anytime soon, and the property sector will not pick up in the near future, the pro-reform camp had been completely wiped off, hitting the confidence investors,” a policy source stated under anonymity.

The source said that the new economic team would have few options other than to resort to large-scale stimulus next year in order to support the economy. They will be focusing on big projects and investment.

He Lifeng, another Xi acolyte, will replace Liu He, China’s economic tsar. He is a U.S-trained economist who was seen as the brains behind previous reforms. Stocksak reported that Yi Gang (the reform central bank chief) will likely retire when he reaches the mandatory retirement age of 2023.

Many policy insiders were surprised by Li Qiang’s elevation. They pointed out the botched handling a Shanghai COVID-19 epidemic that resulted in a two-month lockdown for its 25 million victims, and his lack experience in a national-level economic position.

Stocksak was told by Jia Kang (ex-head of the think tank for the finance ministry) that “what we should urgently do is revive the economy.”

Jia stated, “We face the problem with weakening expectations. It’s empty talk if it’s not possible to revitalise our economy.”

MOUNTING CHALLENGES

Analysts and policy insiders said that Xi’s push to create a state-led model of economic growth at the expense of market reforms could undermine his long-held goal of making China a major global power by the middle century.

China’s economic miracle began in 1978, when Deng Xiaoping initiated historic reforms that allowed more private enterprise and opened the economy to foreign investors.

Citi analysts wrote that after Xi revealed his new team, “National security has been elevated to the highest level ever amid rising geopolitical risk,”.

Official data on Monday showed an acceleration in the third quarter’s recovery. Investors will now be looking for key policy information from the Politburo meeting or the annual Central Economic Work Conference, which are both expected to take place in December.

China’s September surveyed urban unemployment rate rose to 5.5%. This is the highest level since June. COVID curbs have squeezed businesses. The unemployment rate for job-seekers was 17.9%.

China is likely to miss its annual growth target, which is around 5.5%. Stocksak’s latest poll predicted that China would grow at 3.2% in 2022. China’s growth could rise to 5.0% in 2023 thanks to a lower baseline, according the poll.

Investors disappointed by Xi’s Standing Committee decisions, who had hoped he would keep some reform-minded officers, including Wang Yang, former Guangdong Party boss.

“There is likely to be more deference to Xi Jinping’s own views about how to move the country and the economy forward,” Alvin Tan, head of Asia FX Strategy at RBC Capital Markets in Singapore, said.

News Source and Credit

Stocksak Editorial

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