Will Chinese leaders historic 3rd term improve or worsen flailing state-controlled economy?

中, 3분기 성장률 발표 연기… “시진핑, 당대회서 제로코로나•부동산 정책 변화 언급 안해”

China has abruptly delayed the announcement of its quarterly economic growth which had been due on tuesday and this is the ruling chinese communist party holds its key congress where its leader xi jinping is set to start a historic third term in office renewing his presidency for the next five years and possibly beyond so what does this mean for the chinese economy

Which has been losing steam and annual growth and has been riddled with structural issues in recent years for more return to mati baking china director of the economist in intelligence corporate network thank you for joining us again matty it’s lovely to see you again great to be with you thanks for having me well all eyes are on this national party congress over

In beijing and many observers were actually expecting the ccp to declare and enter the zero covert policy which was regarded by many as quite disastrous but uh xi jinping of course he’s loaded it rather as a success story and he didn’t even mention the property crisis but well let’s focus on the zero covert policy first i mean what has been the impact of this policy

And if the ccp continues with it then what’s it really going to mean for the chinese economy so you’re correct that there was some sort of speculative wishful thinking before the party congress that we would see signals of a shift in this policy which has essentially been wreaking havoc with the chinese economy um instead president xi’s speech made very clear that

Zero covet is here to stay and the party will continue to put quote the people in their lives above all else he also used the language of struggle in relationship to zero covet uh saying that the quote all-out people’s war to stop the spread of the virus will continue even if and this is my analysis even if it has been damaging the economy the truth is zero covet

Has really stomped on consumer and investor confidence in china i do not see a real economic turnaround becoming possible without abandoning the policy we also don’t anticipate at the eiu the economist intelligence unit that with the policy will be relaxed in the immediate future as you said it’s very clear that they’re continuing with it it’s associated closely

With mr xi personally and used as evidence of of his valuing the lives of the chinese people it to me there are other headwinds facing the chinese economy as you noted particularly the property sector and i look forward to discussing that as well but zero covet above all i feel almost has a chokehold on growth at the moment um and so we don’t see an economic

Turnaround really taking uh gathering steam until there’s a real shift in the policy right it does seem quite unfortunately that mr she will keep powering through with this very clear with policy and well the way that chinese authorities have been responding to the pandemic has been quite different from how they responded to the previous economic crisis back in

Late 2008 when china introduced the largest stimulus package in the world in the wake of the global financial crisis of course but we didn’t see anything like that during the pandemics so why was this the case well it’s an excellent question but in some sense it was not necessary i think it’s very important to remember that the zero coveted policy was extremely

Effective for china for the first two years of the pandemic uniquely china’s growth never dipped below q4 2019 levels and despite taking a short hard hit early on china’s recovery was swift china’s stimulus packages in 2008 was actually crucial in helping the global economy recover from the financial crisis and until omicron china was again the greatest source of

Global growth and kind of leading the global recovery coming out of the pandemic this is also i believe partially why the current slowdown in china feels so remarkable china has been the largest and most reliable source of global growth for the last two decades accounting for some i believe 25 percent of global gdp growth during during that time so they didn’t kind

Of need a big stimulus package in response to the pandemic because zero covered was effective and while the other key issue the property sector in china it’s been seeing a vicious circle of indebtedness lower confidence a growing number of mortgage boycotts and a further slump in sales while chinese regulators are doing what they can to stop it from collapsing of

Course is this pretty much the end for property developers do you think i mean what do you think will be the long-term effect of this on the why the chinese economy it’s a great question the long-term effect essentially will have to be a reconsideration or restructuring of the property sector um not unlike kind of the slowdown in growth being difficult to wrap your

Mind around because it’s not what we’re used to seeing from china you know for decades the property industry has been symbolic of china’s rise we’ve seen private entrepreneurs made have made fortunes average people have seen their net worth soar as home values have been dramatically increased in some cases troubled and local governments of course have generated

Revenue by selling land to developers it’s important to note that a remarkable 70 of chinese household wealth is now tied up in real estate so that’s as you noted at the outside part of the reason that the property sector slowdown is really undermining trust in china’s growth model overall reviving trust in the system is actually crucial for the government right

Now um yet the government’s response so far has seen disjointed and slow and it seems sometimes as though officials are overwhelmed by the complexity of the situation so to regain faith in the housing market what we’ll need to see is the stalled projects finished construction firms and workers reimbursed and investors paid back on fixed income products all of this

Of course needs to be accomplished without re-inflating the unsustainable debt balloon that led to the deleverage the leveraging of the property sector in the first place so that’s no easy task so far the central government has not has taken some actions of course but you’ve also seen a lot of actions at the local level the real question is will the government

Step in as a lender of last resort for the stalled projects um that and we might see that eventually it might come to that to kind of prevent a complete collapse in the sector but we have not seen that yet and i think if you were to if you were to look at what the government will prioritize overall i believe that home buyers and homeowners will be protected for

Example above some of the international bondholders who have already been hit by the defaults of some of the big property developers just because it is so closely linked to social stability and also individual fortunes in china well very dim prospects for youth there as well who are you know just struggling with use on employment and well china’s entrepreneurship

It’s been amazing the world since the mid 2000s but now growth has been slowing in recent years and badly placed reform safe her market confidence not to mention xi jinping he’s been cracking down on leading business people do you think the ccp is going to reverse some of its policies or do you think it’s going to become even more controlling i don’t think we’re

Going to see a reversal um the spate of regulatory and policy actions that we saw starting in 2021 focusing as you note on china’s effervescent tech sector where you had you know the new national champions of china these very innovative tech firms but also other areas this really reflected i believe the central government’s confidence that it could make policy

Choices to shape the economy and society it wants for the future one grounded in principles of self-sufficiency national security and social fairness and so that’s part of what this crackdown is really about about um that said you know maybe on the tax sector we’re kind of seeing the beginning of the end earlier this year there was some indication indication

Of the pain of this kind of spiraling tech sell-off that we saw in the markets i believe at its deepest it wiped out more than 2 trillion us dollars in overall market value was becoming maybe too much in march china state news agency xinhua published a report from a meeting of the central government chaired by lioha china’s top economic advisor and that report

Noted that there would be a quote rectification of large chinese technology companies or that the rectification excuse me would come to a close and that new regulations should be more transparent uh mr leo was supposed to have urged that policymakers be cautious when implementing rules that might hurt the market so that’s kind of a positive indication that perhaps

Again we’re at the beginning of the end of the tech crackdown and it has been more stable since the spring of course china’s been grappling with other problems including the omicron outbreak since then that said i believe that a reversal is not in the card china wants its tech to be aligned with national priorities and well she’s in pink he said that china is

Going to give unwavering support to the private private economy and let the market play a decisive role in resource allocation but there’s still no single unified national market in china i mean is it going to be easy to prop up domestic consumption the short answer is no boosting consumption has not and will not be easy for china we consumer spending has long

Been a feature of the chinese economy with private consumptions shared gdp well below global average and even well below the average of other exporting countries like south korea for example um you know the plans announced 10 months ago by beijing to build a unified domestic market were designed to make the even as china is ramping up efforts to make the economy

Less dependent on the outside world and focusing on self-sufficiency to also make the market a bigger magnet for global firms and investors and with emphasis on more efficient production distribution circulation and of course consumption the plan however was short on details and i think the hurdles to realizing a single unified market in china remain high due to

Favorism favoritism and local protection and local protectionism these are issues that are kind of evergreen particularly for foreign companies trying to operate in the china market and we we have not seen measures taken to kind of resolve those issues about china’s currency it’s recently slid to a new low against the greenback and that’s not been seen since the

Global financial crisis and that came despite the chinese central bank taking steps to prop up its value how is the stronger dollar affecting china’s financial stability it’s an excellent question so i’m gonna it’s been kind of a volatile time for the the remnb just before china’s golden week holiday at the start of october this year we had the people’s bank of

China the pboc kind of an issue and admonishment not to bet against the rmb we had dramatic headlines declaring that the pboc is bringing out the big guns in propping up the currency as you noted and we also had a speed of analysts spreading about a repeat of 2015 when a very poorly executed devaluation of the un provoked capital outflows that really further

Undermined the currency however for now i think that a rerun of that situation is unlikely first of all un is no longer overvalued adjusted for inflation it’s about 10 below its fair value according to the institute of international finance the un’s target zone is better managed by beijing and its capital controls are better enforced in the past china kept its

Currency anchored to the dollar because it feared that a conspicuous drop would trigger a run on the currency the un’s decline against the dollar is now less than likely to become disorderly so for that reason china is actually trying a bit less hard to prevent it so even if we’ve seen the redmond be declined past basically psychologically important thresholds in

August it crossed 6.8 to the dollar close to the level at which the un was pegged after the global financial crisis of 2008 to 2009 and then on september 26th the central bank set the fix at more than seven yen to the dollar for the first time since the very early stages of the covid-19 pandemic so this indicates a little bit that china’s policy makers are more

Relaxed in and confident in their ability to kind of control the u.n so i am not as concerned about this as i think the the more dramatic headlines would make you believe that we should be right and over the past two decades uh the world’s just been astonished at china’s economic progress so it’s leaps and bounds that it’s made as the chinese say in the second

Largest economy in the world but it greg just 0.4 percent in the second quarter from a year earlier this year and well do you think the days of recording you know eight percent uh such as eight percent uh year-on-year growth um do you think those years are over for china i mean even before shizinping took power there were already debates over whether the country

Would be able to avoid this middle income trap but what’s your outlook on the course of china’s economic growth in the long run the outlook remains complicated and is fairly bleak in the short term i think it’s important to note for some of the issues that we’ve talked about already that um you know the first of all china’s economy economic slowdown was inevitable

Um you can only sustain those extremely high levels of growth for so long and we even had uh in 2021 uh economics are leo could note that the growth of all at all costs era was over and that they were more interested in the orderly development of capital and again shaping an economy that’s more sustainable in the long run not relying for example on the property

Sector to inflate growth or being fully reliant on exports so even if china’s economy may have already bottomed out in the second quarter of this year however the recovery means fragile the slump in the property market shows no signs of easy global demand for chinese goods is slowing there’s a slowdown everywhere not just in china the number of coveted cases is

Rising in the currency as we discussed has been falling so at the economist and tell intelligence unit we’re focusing forecasting about 3.3 percent gdp growth for china in 2022 we’re more optimistic than many um so i think overall we with the covid challenges uh continuing the property sector uh challenges continuing the short-term outlook remains complicated

You know hope springs eternal the coming out of the party congress and of course the two sessions next year will see more effective stimulus measures probably focused on consumer technology especially critical technologies automotive and infrastructure but no country not even china can maintain high politically predetermined levels of gdp growth and perpetuity

The slowdown was was going to happen it’s been made more painful by some of the global headbands and some of the policy choices that we’ve seen in china particularly zero kobit and the response to the property sector crisis um but we’re not going to be going back to the days of china called growing like china growing at this extremely high level the china will

Continue to grow it’s still going to be an important market and a very consequential player in the global economy and an important source of growth but not at the levels that we’ve seen previously right so it seems that the ccp is hoping that party ideology and party politics will somehow be able to override the market dynamics but we’ll have to see how things go

In the years to come that was matty baking china director of the economist intelligence corporate network thank you very much for your time thank you and a big thank you to our global viewers around the world thank you for tuning in we’ll be back we’ll be back on thursday career time with the latest insights on issues making headlines around the world thank you very much for watching

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Will Chinese leader's historic 3rd term improve or worsen flailing state-controlled economy? By Arirang News