• Xi Jinping is consolidating his position of power
• China’s stock exchanges are reacting with price slumps
• Analysts are counting on the economic expertise of Xi’s new followers
China’s head of state and party leader Xi Jinping only recently further consolidated his position of power in the People’s Republic and secured long-term support by promoting numerous loyalists to his leadership team. Previously, the 69-year-old Xi had defied the previously respected age and term limits in order to continue holding his posts. He succeeds the founder of the People’s Republic of China, Mao Tsetung.
China’s stock markets collapse
However, the markets reacted anything but pleased to the head of state’s show of force. In response to the results of the party conference lasting several days, the Shanghai Composite ultimately fell 2.02 percent to 2,977.56 points, while the Hang Seng fell even more sharply: the Hong Kong leading index ultimately lost 6.36 percent to 15,180.69 points.
Ideology before growth?
The background to the price drop was, among other things, market participants’ concern “that China is moving from economic pragmatism to political ideology,” as Ales Koutny, Investors portfolio manager at Janus Henderson, commented to Dow Jones Newswires. “The message is clear: the zero-COVID lockdowns, shared prosperity agenda and sectoral measures are not going away.”
During his previous tenure, Xi had already reined in Chinese tech giants in particular and subjected them to more restrictive rules, which led to major price losses for giants like Alibaba, Tencent and DiDi Global. Numerous Chinese companies have already delisted from US stock exchanges in favor of Chinese markets, and many more are likely to follow. In addition, the strict corona lockdowns, which temporarily paralyzed the whole of Shanghai, had caused global supply bottlenecks, which is why the possible continuation of such measures is causing investors to frown.
Initial analyst reaction initially negative
As a reaction to Xi Jinping’s cementing his power, numerous analysts made negative comments. For example, Bernstein expert Mark Schilsky: “Shares in the second largest economy are once again proving to be ‘uninvestable’,” CNBC quoted from a news item. In CNBC’s “Closing Bell”, Mark Mobius also predicted a “China more in the style of Mao Tsetung than in the style of Xi Jinping”, which would be less oriented towards markets and capital. For this reason, in his opinion, caution is still required when it comes to China investments, even though numerous Chinese stocks are currently available at bargain prices.
Teneo expert confident
However, as Teneo Managing Director Gabriel Wildau explains in a message obtained by CNBC, there is no reason to bury one’s head in the sand. The three new members of the Politburo’s Standing Committee, Li Qiang, Li Xi and Cai Qi, were all previously responsible for China’s rich provinces, where “economic growth is still the top priority.”
Even Normura less pessimistic
Li Xi led the important export province of Guangdong, while Cai Qi took care of China’s capital Beijing. However, as party secretary in Shanghai, Li Qiang, who is being traded as the next prime minister of the People’s Republic, was primarily responsible for the restrictive lockdowns there. However, Nomura analyst Ting Lu told CNBC he has “extremely extensive experience managing some of the wealthiest and largest provincial economies,” citing that Li is generally viewed in market circles as a “pro-market and pro-growth politician.” .
“Mr. Li suffered some setbacks during the omicron wave earlier this spring, when the entire city of Shanghai was ordered into a restrictive lockdown. And yet, under Mr. Li’s leadership, between most of 2020 and 2021, Shanghai was treated as a role model for how a sensible one balance between COVID restrictions and economic growth can be achieved.”
Hope for the end of the restrictive corona policy
It remains to be seen whether the corona policy will continue to be particularly strict in the future. No change was initially announced during the party congress either. As Bank of America China and Asian economics expert Helen Qiao suspect in a report available to CNBC, changes are more likely to be imminent here than the market is currently expecting: “In our view, the conclusion of the [Parteikongresses] enabling the top management team to move on to the next item on the agenda – unbinding the COVID shackles.”
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