{"id":76447,"date":"2022-11-09T12:30:51","date_gmt":"2022-11-09T01:30:51","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=76447"},"modified":"2022-11-09T11:30:57","modified_gmt":"2022-11-09T00:30:57","slug":"can-inexperienced-new-leaders-save-chinas-economy-from-xi","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/can-inexperienced-new-leaders-save-chinas-economy-from-xi\/","title":{"rendered":"Can inexperienced new leaders save China\u2019s economy from Xi?"},"content":{"rendered":"
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The new leadership team selected by Chinese President Xi Jinping at the 20th national congress of the Chinese Communist Party failed to impress financial markets at home and abroad. In the week following the announcement of Xi\u2019s new team, Hong Kong\u2019s stock market declined<\/a> by 8.3% and the Shanghai Composite Index, China\u2019s largest stock exchange, dropped<\/a> 4%, despite the Chinese government\u2019s intervention to prop up prices. US-listed Chinese stocks plunged<\/a> by 15%.<\/p>\n

Investors have good reason to worry. Though financial markets had already priced in Xi\u2019s third term, investors had hoped that he would appoint a team of more moderate, experienced officials capable of putting pragmatism above politics. Instead, Xi packed<\/a> the Politburo and its standing committee with loyal allies and prot\u00e9g\u00e9s.<\/p>\n

China\u2019s next premier<\/a> will be Li Qiang, who was Xi\u2019s chief of staff (2004\u201307), before later serving as governor of Zhejiang province (2013\u201316) and CCP secretary of Shanghai (2017\u201322). Li is widely credited with convincing Tesla to build<\/a> its largest overseas factory in Shanghai\u2014an achievement that has bolstered his business-friendly reputation. But, unlike every other premier since 1988, Li has no national-level administrative experience.<\/p>\n

Ding Xuexiang, the next executive vice premier<\/a> of the State Council, has even less leadership experience under his belt, having spent the last 10 years as Xi\u2019s principal aide. In investors\u2019 view, these officials lack the knowhow and independence to mount an effective response to the profound economic challenges China faces.<\/p>\n

Xi stands to benefit from these low expectations, with any minor success appearing significant and burnishing his government\u2019s credibility. Here, perhaps the lowest-hanging fruit is his zero-Covid policy, which has devastated the economy and contributed to an urban youth unemployment rate of nearly 20%<\/a>.<\/p>\n

At the party congress, Xi had little choice but to tout the policy as a major success, despite the devastation it has wrought. But with the meeting out of the way, and Xi starting his third term, the incentive to end the zero-Covid policy is strong. The boost to growth and employment\u2014and to Li and Ding\u2019s reputations\u2014would be immediate.<\/p>\n

Xi\u2019s new economic team would also benefit from easing regulatory pressure on China\u2019s technology sector. Since the Chinese government began tightening the regulatory screws, private tech companies such as Alibaba and Tencent have suffered, and foreign investors have fled China in droves. Goldman Sachs estimated<\/a> last year that the crackdown had wiped out roughly US$3 trillion of the Chinese tech sector\u2019s value.<\/p>\n

Given that the tech crackdown is widely viewed as excessive and counterproductive, any letup by the government would send positive signals to investors about the future of China\u2019s tech sector, the new leadership team\u2019s pragmatism and the prospects for a return to robust economic growth.<\/p>\n

But China\u2019s new leaders can make the greatest impression on investors if they can prove that they can handle the country\u2019s toughest economic challenge: an imploding real-estate sector. Property sales are likely to drop<\/a> by as much as 30% this year. Several large developers, such as Evergrande and Shimao, have defaulted<\/a> on their debt. With funding cut off, many building projects remain unfinished, leading some angry home-buyers to stop<\/a> making mortgage payments.<\/p>\n

This crisis will be the true test of the new economic team\u2019s capabilities. Can they find a solution to widespread developer insolvency? Can they prevent the mass bankruptcy of local government financing vehicles, which took out massive bank loans using land as collateral? Can they find ways to ensure that new projects are not left unfinished? And can they stave off a housing-price collapse, as real-estate investment stops generating returns for the wealthy?<\/p>\n

Even partial success here would bring a massive payoff. The real-estate sector powered China\u2019s economy for two decades, contributing<\/a> 17\u201329% of China\u2019s GDP growth. Its revival could thus put the country back onto a positive growth path.<\/p>\n

It\u2019s far from clear that Xi\u2019s new team is capable of devising effective solutions to the real-estate crisis; after all, their predecessors were not, despite being far more experienced. But even if they are, there is good reason to doubt that Xi will allow a change in policy. Simply put, whether the doomsayers are proved right or wrong depends\u2014like virtually everything else in China nowadays\u2014on the man at the top.<\/p>\n","protected":false},"excerpt":{"rendered":"

The new leadership team selected by Chinese President Xi Jinping at the 20th national congress of the Chinese Communist Party failed to impress financial markets at home and abroad. 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