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China PMI November 2022

China: 20th Party Congress to signal policy continuity

Xi Jinping is set to be appointed for a third term as leader

His third term will likely retain a focus on self-sufficiency and state intervention in the economy

Chinas 20th Party Congress—a quinquennial gathering to renew the Communist Partys top leadership—began on 16 October and is expected to last a week. Xi Jinping is set be appointed for a third term as Party leader. Then, in February/March 2023, the reshuffle of the government will take place, after which Xi will likely be reappointed as Chinese President. The upshot of both events is likely to be that Xi Jinping cements his grip on power through the appointment of more political allies to the most important jobs.

Assuming Xi secures a third term, this will be marked early on by Covid-19 and the housing market. He has given no indication that the zero-tolerance Covid-19 stance will be abandoned any time soon; indeed, in a survey we carried out in October among 73 of our analysts, roughly half saw the zero-tolerance approach being maintained until at least H2 2023. If confirmed, this would cast a pall over economic activity next year. Moreover, the next Chinese government is likely to unveil further measures to support the collapsing real estate sector in order to stave off a wider crisis.

Broader themes of Xis third term are likely to be a further push for economic self-sufficiency in agriculture and key technological domains, elevated state oversight of private-sector activity, and inflamed tensions with the West—particularly the U.S. These trends risk harming the countrys growth trajectory and causing the convergence to developed-economy income levels to slow. In addition, the population is set to start declining over the next five years. As a result, Beijing is likely to intensify efforts to boost the rock-bottom birth rate: Measures could include extra financial support to households and the further relaxation of the Hukou system of household registration.

Regarding the countrys Covid-19 stance, analysts at Nomura said:

“Between now and March 2023, we expect no significant policy changes, particularly to the landmark zero-Covid strategy (ZCS) and the unprecedented curbs on Chinas property sector. Although some analysts on the Street have been arguing for a significant easing of the ZCS right after the Party Congress, we have consistently viewed such a scenario as unlikely. Furthermore, what we have observed on the ground in recent weeks and what we interpret from the latest commentaries in the official Peoples Daily suggest no easing of the ZCS at all.”

On broader policymaking, the EIU said:

“The party congress will be worth watching for signs of reforms relating to covid19 policy or support for the beleaguered private sector. However, the more likely scenario is that policy retains a strong political and ideological hue that will continue to give rise to suboptimal choices in regards to the economy as well as geopolitics.”

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