HONG KONG – Several global investment houses recently updated their 2023 growth forecasts for China from the 4% range to well above 5%. We believe this is too conservative. An “explosive growth spurt” (in the words of a savvy Hong Kong Chinese investor) in the 7-8% range is highly likely as the current wave of Covid recedes.
The basic premise for this, as we have written and reiterated on several occasions since just before the 20th Congress of the Communist Party of China, is that – contrary to the biased and ill-informed “reporting” of the Western press – the third term will not be characterized by a further tightening of centralized controls on the economy and suppression of private sector initiative by a cohesive group of handpicked Xi supporters, but quite the opposite.
That could and should have been clear to any attentive observer the moment Shanghai party chief Li Qiang emerged in the number two position behind Xi in the presentation of the new Politburo Standing Committee following the conclusion of the party congress. .
Li, whose political career began in Wenzhou, a proud bastion of free enterprise in Zhejiang province, opened the Shanghai Stock Exchange’s new STAR market and helped Elon Musk build the Tesla Gigafactory in Shanghai in record time during his tenure in Shanghai. , to mention just two of its outstanding initiatives.
Yes, Li is loyal to Xi: he served under Xi in Zhejiang. But why would Xi choose a loyalist of Li’s pedigree to become his prime minister in charge of the economy if he wants to pursue policies in the opposite direction? It’s a self-contradictory “analysis” that only the hapless denizens of Washington’s tuned echo chambers could produce.
Since Li’s nomination to take over as prime minister at the 14th National People’s Congress in March this year, all Politburo and relevant government agencies have single-handedly pointed in the direction of a strongly growth-oriented economy, led by high technology, driven by by consumption and supported by monetary policy. .
Bloomberg quotes former head of research at Bocom International Hong Hao, an outspoken supporter of China, in noting that there have been “policy pivots in almost every sector.” This, of course, first of all includes the radical decision to scrap the “Covid-zero” policy of the past three years altogether.
Significantly, Li opposed the drastic April 2022 lockdown of Shanghai, prompting Beijing to send the Iron Lady, Deputy Prime Minister and Politburo member Sun Chunlan, to Shanghai to do so.
This, in turn, has led many Western observers to dismiss Li as a member of the Politburo Standing Committee. Unfortunately, Sun has retired from the Politburo and Li is about to take over as head of government.
As we reported on November 29, even before the 20th Congress, the decision had been taken to abandon Covid-zero and henceforth treat the disease as endemic and not as a pandemic plague.
Certainly, protests in several cities accelerated the policy pivot. But clearly, Xi had concluded that Covid-zero was not compatible with the necessary acceleration of economic growth and decided on a radical change to cut the Gordian knot.
It was and remains a high-stakes decision. But there was no viable choice and the opportunity to gain herd immunity was with the more infectious but less virulent Covid variant.
As for the multiple pivots of the fastest-growing policy, we’ll only list the most relevant and impactful ones here:
- Guo Shuqing, head of the Communist Party at the People’s Bank of China (PBoC), told the Xinhua news agency on Jan. 7 that the crackdown on fintech operations and platforms of 14 major internet companies is “basically” over. “Next, let’s promote the healthy development of internet platforms… Let’s encourage them to excel in leading economic growth, creating more jobs and competing globally,” said Guo. – Perhaps not coincidentally, Alibaba’s Jack Ma announced the same day that he was ceding control of Ant Financial, Alibaba’s fintech affiliate.
- The PBoC has said it will do whatever it takes (Draghi’s famous vote) to support monetary policy to heal the housing market and overall growth in consumption and investment. After peaking at 2.8% year-on-year in September 2022, China’s inflation rate dropped to 1.6% in November – meaning that deflation is now more of a threat. There is ample room for monetary easing from the current 3.65% prime lending rate.
- Liu He, the retiring economy car, was tasked with fixing the real estate market. He, more than anyone else, has the credentials and political support for this.
- More affordable energy is needed to drive economic recovery. China has filled its reserves with cheap Russian oil. It has now also lifted a two-year ban on importing Australian coal.
- On January 8, the border between Hong Kong and mainland China was reopened. In addition to the sheer joy of family reunions after three years, cross-border flows of people and goods are key to the recovery of the economies of Hong Kong and Guangdong provinces, the most productive in China along with Shanghai.
Overall, two developments stand out: first, the December 2022 Central Economic Work Conference, which set economic policy for 2023, called for support for monetary policy to accelerate growth. It also issued an explicit call for the rapid development of the digital economy and support for the role of online platform companies in economic growth.
Second, Chinese households accumulated over RMB2 trillion ($295 billion) in excess savings in 2022, which should give a strong boost to consumption.
The lifting of political restrictions and repressed economies are powerful drivers of growth. By appointing Li to replace Li Keqiang’s miscarriage, President Xi has set an unmistakable signal for his priorities in his third term.
Follow Uwe Parpart on Twitter at @uwe_parpart
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