Chart Of The Week   October 26 2022

Takeaways From China’s 20th Party Congress

China Congress Party

According to BCA Research’s China Investment Strategy service, messages from the Party Congress suggest that China’s policymakers will continue to balance the trade-offs between short-term economic growth, socio-political stability and the nation's long-term goals.

Xi’s work report suggests that despite short-term economic pain, the top leadership will likely hold on to some of the structural reforms. These measures include:

  • Quality over quantity of economic growth. Xi reiterated the Party’s “high quality development first” slogan. Meanwhile, Xi placed much lower weight on the economy, the market, opening up and reforms, compared with his predecessors. The Party still needs a reasonable economic growth rate to support decent job creation and income growth. However, economic initiatives will continue to focus on the quality of growth. Investment in the capital-intensive and unproductive old economic sectors, will likely continue giving way to investments in new economy sectors.
  • No change in the long-term property policy stance. The report from the 20th Party Congress did not suggest that the authorities will modify their focus on deleveraging and reducing financial risks in the real estate sector. The team expects the property sector to continue experiencing downward pressure. Easing measures will help to slow the pace of contraction but not lead to a full-fledged recovery in the sector.
  • Continuation of the anti-corruption campaign. Anti-corruption remains a top concern. The effect of the anti-corruption campaign will be evident on the economy as local governments reduce their appetite for risk and lower their propensity to borrow and invest. The tight grip on local government officials and balance sheets has led to a meaningful downshift in shadow banking activities as well as infrastructure investments.
  • Great struggles” versus “the new long march”. The mention of “great struggles” at the Party Congress, may indicate that the top leadership sees the current economic downturn as a necessary pain as China transitions to a more balanced and more "shock-resistant" economy in the longer term.

The lack of a significant shift away from current macro and regulatory policies means that China’s economic recovery and stock performance remain at risk. Maintain a cautious stance on Chinese stocks and the exchange rate.