China GDP: 2022 Q3 data stronger-than-expected after Xi Jinping secures third term in power

China GDP: 2022 Q3 data stronger-than-expected after Xi Jinping secures third term in power


hong kong
CNN Business

China released stronger-than-expected GDP and other economic data on Monday, just a day after Xi Jinping clinched a historic third term in power following the conclusion of a major political gathering.

But foreign investors were still spooked and dumped Chinese equities in overseas markets, concerned that Xi’s tightening grip on power will lead to an escalation in Beijing’s existing policies and further dent the economy.

China’s GDP grew 3.9% in the third quarter from a year ago, beating market expectations, the National Bureau of Statistics announced on Monday. Previously, a Reuters poll of economists had expected growth of 3.4%.

That marked a pick-up from the 0.4% increase in the second quarter, when China’s economy was battered by widespread Covid lockdowns. Shanghai, the nation’s financial center and a key global trade hub, was shut down for two months in April and May.

But the newly released 3.9% growth rate was still below the annual official target that the government set earlier this year.

“The outlook remains gloomy,” said Julian Evans-Pritchard, senior China economist for Capital Economics, in a research report on Monday.

“There is no prospect of China lifting its zero-Covid policy in the near future, and we don’t expect any meaningful relaxation before 2024,” he added.

Coupled with a further weakening in global economy and a persistent slump in China’s real estate, all the headwinds will continue to pressure the Chinese economy, he said.

Evans-Pritchard expected China’s official GDP to only grow 2.5% this year and 3.5% in 2023.

Monday’s GDP data release came after a week of delay.

The economic data were initially scheduled to come out on October 18, but had been postponed without any explanation.

The ruling Communist Party held its twice-in-a-decade party congress from October 16 to October 22, during which Xi not only managed to secure a previous-breaking third term as the party chief, but also filled the new leadership team with his staunch loyalists — a sign that Xi now has an iron grip on power.

But a number of key economic officials who are well known for being supportive of market reforms and opening up the economy were missing from the new leadership, stirring concerns about the outlook of China’s already fragile economy. The missing names include Premier Li Keqiang, Vice Premier Liu He, and central bank governor Yi Gang.

Following the revelation of the new leadership and GDP data, Hong Kong’s Hang Seng (HSI) Index plunged on Monday and headed for its biggest losses since the 2008 global financial crisis. The index is a key gauge of overseas investor sentiment on China.

The Chinese currency also tumbled, weakening sharply against the dollar.

“It appears that the leadership reshuffle spooked foreign investors to offload their Chinese investment, sparking heavy sell-offs in Hong Kong-listed Chinese equities,” said Ken Cheung, chief Asian forex strategist at Mizuho bank.

Some analysts said the new leadership doesn’t bode well for the economic outlook or US-China relations.

“With the Politburo Standing Committee composed by President Xi’s close allies, market participants read the implications as President Xi’s power consolidation and the policy continuation,” Cheung said.

“It appears that foreign investors were worrying about escalation of existing policies such as zero-Covid and ‘Common Prosperity,’ as well as the China–US tension,” he added.

Mitul Kotecha, head of emerging markets strategy at TD Securities, also pointed out that the disappearance of pro-reform officials from the new leadership bodes ill for the future of China’s private sector.

“The departure of perceived pro-stimulus officials and reformers from the Politburo Standing Committee and replacement with allies of Xi, suggests that ‘Common Prosperity’ will be the overriding push of officials,” Kotecha said.

“Common Prosperity” is a campaign that Xi initiated last August to redistribute wealth and narrow the gap between rich and poor, as Xi described it. Under the banner of the campaign, Beijing has launched a sweeping crackdown on the country’s private enterprise, which shook almost every private-sector industry to its core.

On Monday, Hong Kong’s benchmark Hang Seng Index opened sharply lower and sank 6.1% in early afternoon, poised for its biggest daily decline since November 2008.

The Hang Seng Tech Index, which tracks the 30 largest technology firms listed in Hong Kong, plunged more than 8%. Alibaba (BABA) and Tencent (TCEHY) plummeted 10.5% and 9% respectively.

The Chinese yuan weakened sharply against the greenback. The offshore yuan currently trades at 7.269 per dollar, down 0.5% from the previous day. The onshore yuan also dropped 0.3% to 7.252 per dollar.

“Tea [market] reaction in our view is consistent with the reduced prospects of significant stimulus or changes to zero-Covid policy. Overall, prospects of a re-acceleration of growth are limited,” Kotecha said.

Meanwhile, the Shanghai Composite Index, which trades on the tightly controlled domestic market in China, dropped 1.3%. The tech-heavy Shenzhen Component Index lost 1.9%.

Elsewhere in Asia, Japan and Korean markets have pared early gains. The Nikkei (N225) rose 0.5%, and the Kospi added 0.8%.

.

Leave a Comment

Your email address will not be published. Required fields are marked *