China: challenge and opportunity coexist

China: challenge and opportunity coexist

from Yun BaiReading time: 2 minutes

The 20th national congress of Chinese Communist Party kicked off on the 16th of October with more than 2200 party member delegates gathering in Beijing for the entire week. The congress, which takes place every five years, is a key event deciding on the constituents of the Politburo Standing Committee and pivoting the development focus of the nation for the future.

Chinese President Xi Jinping gave the opening speech reflecting on China’s rapid economic progress over the last ten years since he took office and outlining the political and economic landscape for the next decade.

The fourteenth 5-year plan

In his speech, Xi stated that the party will push forward with the economic reforms and continue developing the real economy that was envisioned in the fourteenth 5-year plan announced last year. The focus is on developing high quality and modernized industry production, backed by technology innovation, high speed transportation, and digitalization. He also mentioned that facing the complex international trade environment, the government will push to shift the economic dependency on export to domestic demand but will further open the Chinese market to foreign investment at the same time.

In contrast to the previous congress, Xi gave a greater emphasis to developing a green, low-carbon economy that consists of three main pillars: green energy, green production, and green consumption. 

Im Gegensatz zum letzten Kongress legte Xi grösseren Wert auf die Entwicklung einer grünen, kohlenstoffarmen Wirtschaft, die aus den folgenden drei Hauptpfeilern besteht: grüne Energie, Produktion und Konsum.

China is facing challenges

However, reviving the economy poses a significant challenge for the Chinese government. The strict zero Covid policy over the last three years and the regulation crackdown ongoing since July 2021 on certain industries, such as tech and real estate, have left a heavy dent on the economy.

The consensus on the GDP growth estimate of 2022 is adjusted downward to 3.4%, way below the government’s target of 5.5% laid out in the beginning of the year. The youth unemployment rate based on August data remains high as 18.7%. Hindered by the extended Covid lockdowns, the demand for consumer goods remains rather low. Despite that many are expecting the Covid policy will be eventually eased, it seems at least in the short-term the policy is here to stay.

Meanwhile, the geopolitical tension with US casts a negative impact on the Chinese export. Adding that Xi repeatedly stated in his speech on guarding national security, strengthening the army, the firm stance on Taiwan and the ultimate reunification of China, one would expect that the geopolitical dispute could last for a while.

Chinese equity with big losses

Seen from the market reaction, many of the headwinds seem to have been priced in already. The Chinese equity is trading at a significant discount compared to other markets. The MSCI China index posted a loss of nearly -50% since July 2021, the start of the regulatory crackdown. In the same period, S&P 500 dropped around -12%, MSCI World Index -17% and MSCI Emerging Markets Index -33%.

Xi’s speech further signals more monetary and fiscal stimulus as well as supporting conditions on key industries such as technology, industrial, and alternative energy. According to the China Ministry of Commerce, the foreign direct investment into China has been growing rapidly in 2022, particularly in tech and manufacturing industries. Despite the uncertainty from Covid lockdowns, oversea investors seem to be rather enthusiastic about the long-term potential of the Chinese market.


Read more about the China New Vision Index here.

30/03/2023 06:19:12


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