President of China Xi Jinping position in the power of the world’s second largest economy is further strengthened. This became evident at the party congress that ended over the weekend, where Xi was elected to a third term as expected.
According to experts, the strengthening of Xi’s position is not good news for the economy.
The strengthening of Xi’s role is indicated especially by the composition of the body responsible for China’s most important decisions, i.e. the Standing Committee of the Communist Party’s Politburo. Four new members were elected to the committee. Standing Committee members are now exclusively Xi’s loyal supporters.
Senior Economist Juuso Kaaresvirta The Bank of Finland’s Research Institute for Emerging Economies says that all such persons who would have been counter-forces to Xi Jinping were “thrown out” of the committee. There will be very little internal discussion in the future, says Kaaresvirta.
– The personal appointments seem pretty boring from an economic point of view, and I don’t think this will be a good thing.
Kaarevirta estimates that forecasting China’s economy will become more and more difficult in the future, as decision-making seems to be driven more by ideological and not so much economic grounds than before.
– A lot of surprises can come from there. It is bad news for the whole world, also for Finnish companies, especially those that operate in China.
Also the chief economist of the banking group Nordea Wind Birch assesses that the increasingly strong concentration of power in Xi Jinping is not a good thing from an economic point of view.
– It would have been hoped that the decision-makers were from more diverse backgrounds and that the group would have included persons known as economic liberals.
According to Koivu, the fear is that China’s decision-making will become even more one-sided. Xi’s line for the last ten years has been that regulation and control of the economy has been increased, says Koivu.
– In that sense, the outcome of the meeting was more worrying than reassuring.
Investors were also spooked by the appointments
The movements of the investors also indicate that the final results of the party conference organized every five years were not convincing from an economic point of view.
On the Hong Kong stock exchange, the Hang Seng index plunged almost five percent on Monday – to its weakest level since 2009. The Shanghai Composite index also fell clearly. The value of the Chinese currency, the yuan, also fell.
On Monday, China also published its latest economic growth figures, but according to both Kaaresvirta and Koivu, the market reacts more to party convention appointments than to GDP figures.
According to China’s official figures, the country’s economy grew by 3.9 percent in July-September. It is in line with expectations, Kaaresvirta and Koivu estimate.
China was supposed to publish its latest GDP numbers already last week, but their publication was postponed, which raised a lot of questions among those who follow the country’s economy. However, according to Kaaresvirta, there were probably technical reasons behind the postponement of the figures.
– Those who accept these figures were probably in the corona bubble of the party meeting, which is why they could not be published last week.
There was no new information about relaxing the corona policy
The prospects of China’s economy are of great importance to the prospects of the world economy as a whole, and thus also of Finland’s economy.
The International Monetary Fund IMF and many other forecasters predict that China’s economy will grow by around three percent this year. For China, which is used to high growth figures, the reading is modest. After the pandemic year 2020, it would be the second weakest growth rate since 1980, reports AP news agency.
One of the biggest problems of the Chinese economy is currently the country’s strict corona line. The ongoing corona lockdowns have weakened households’ ability to spend.
According to Tuuli Koivu, it was disappointing that there was no new information about relaxing the strict corona policy at the party meeting. In any case, Xi’s speech at the beginning of the meeting did not emphasize questions about the economy, says Koivu.
– What caught the economist’s eye was that there was very little talk about the economy. Words related to the economy, reform or the market were few and far between. The speech focused on thinking about safety, says Koivu.
– The role of the economy behind decision-making has shrunk during the Xi era, and this trend is expected to continue.
Juuso Kaaresvirta of the Bank of Finland’s Emerging Economies Research Institute is on the same lines.
He estimates that the topics discussed at the party meeting are not, for example, very pleasant from the point of view of Finnish companies. The speeches emphasized China’s national security and the country’s self-sufficiency.
– At the same time, China is also emphasizing the fact that the superpower competition is only accelerating here, and thus it is throwing more water into the mill. In particular, the tightening of the superpower competition is reflected in the operations of Finnish companies, says Kaaresvirta.
Although the outcome of the party meeting does not seem bright from an economic point of view, according to Tuuli Koivu, there is no reason to paint scary pictures. According to Koivu, it does not seem that Xi is ready to “destroy the basic pillars of the economy”.
Despite everything, Xi gives recognition to market mechanisms and is also solving the biggest issues in terms of China’s economy, such as slow population growth, environmental problems and inequality within the country, says Koivu.
– Xi certainly understands that China’s economy must grow in order for the country to reach its long-term goals.
You can discuss the topic on 25.10. until 11 p.m.
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