Analysis: Xi’s next premier faces tough task reviving Chinese economy

BEIJING, Oct 24 (Reuters) – China’s next premier, who will take office in March, has few options other than increasing stimulus to revive an economy ravaged by COVID-19, insiders said. policy and analysts on Monday, as the opening of Xi Jinping’s new leadership team upset the markets.

On Sunday, Xi was confirmed for a precedent-breaking third term as president and introduced a Politburo Standing Committee stacked with loyalists including Li Qiang, the Shanghai Communist Party chief who is now in line to take over. by Li Keqiang as the main.

Li Qiang has the job of pushing growth to prevent widespread job losses that could undermine social stability, at a time when Xi is emphasizing security.

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He will inherit an economy, the world’s second largest, dragged down by strict COVID curbs and a deepening property crisis, while hopes for any meaningful reforms dwindle as the ruling Communist Party tightens. in its grip on the economy.

On Monday, Hong Kong stocks fell, Chinese stocks fell and the yuan weakened after a new lineup of China’s top governing body fueled fears that Xi would double down on policies driven by ideology of the value of growth.

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“The curbs of COVID will not be removed anytime soon, the property sector will not recover in the near term, the pro-reform camp has been completely wiped out, which has hit the confidence of investors,” a source of policy states the condition of anonymity.

“The new economic group has few options but to use the big stimulus next year to support the economy, focusing on investment and big projects,” added the source.

China’s economic czar, Liu He, a US-trained economist seen as the mastermind behind earlier reforms, will be replaced by He Lifeng, another Xi acolyte. The central bank’s pro-reform chief, Yi Gang, is likely to step down when he reaches the mandatory retirement age in 2023, Reuters reported.

Li Qiang’s elevation surprised many policy insiders who pointed to his failed handling of a Shanghai COVID-19 outbreak that led to a two-month lockdown of 25 million people, and his lack of experience. in a national economic role.

“What we need to do urgently is to revive the economy,” Jia Kang, former head of the finance ministry think tank that runs the China Academy of New Supply-Side Economics, told Reuters.

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“We are facing the problem of weakening expectations and confidence and it will be empty talk if we cannot restore the economy,” said Jia.

ADDITIONAL CHALLENGES

Xi’s push for a state-led economic model at the expense of market reforms could undermine his long-held goal of making China a major world power by mid-century, people say. policy insider and analyst.

China’s economic miracle began in 1978 when Deng Xiaoping initiated historic reforms, allowing more private businesses and opening the economy to foreign investment.

“With national security raised to the highest level amid rising geopolitical risks, how to strike a balance between development and security will be one of the most important questions for leadership in the coming years, ” Citi analysts wrote after Xi unveiled his new team .

After official data on Monday showed a faster-than-expected recovery in the third quarter, investors will look for key clues on the policy agenda from a meeting of the Politburo and the annual Central Economic Work Conference, both of which are expected in December.

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In September, the surveyed urban unemployment rate in China fell to 5.5%, the highest since June, as the COVID curbs squeezed businesses, with the unemployment rate for job seekers between 16 and 24 at 17.9%.

China is on track to miss its annual growth target of around 5.5% – the latest Reuters poll forecasts 2022 growth of 3.2%. The poll indicated that China’s growth could increase to 5.0% in 2023, helped by a low base.

Xi’s Standing Committee picks disappointed investors who had hoped he would retain some reform-minded officials, including former Guangdong party boss Wang Yang.

“There is likely to be more respect for Xi Jinping’s own views on how to move the country and the economy forward,” Alvin Tan, head of Asia FX Strategy at RBC Capital Markets in Singapore, said.

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Reporting by Kevin Yao Editing by Tony Munroe and Andrew Heavens

Our Standards: The Thomson Reuters Trust Principles.

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