China’s Latest Economic Plan Doesn’t Offer Much to Stock- Market Bulls
If the first glimpses of China’s economic goals and priorities for the first year of Xi Jinping’s third term as head of state are any indication, the optimistic words from policymakers that have enthralled stock market bulls in recent months may not have much more to follow have.
The annual legislative session, the National People’s Congress, began Sunday with news that Chinese officials are targeting about 5% growth in gross domestic product this year, the lowest growth target since the late 1990s. The government work report, the document setting out economic goals and priorities, offered little evidence that policymakers were ready to introduce more aggressive monetary and fiscal policies to give the economy an extra boost.
And concerns remain about increased government intervention in the economy in general, including measures that could impede the flow of money across borders. Beijing’s geopolitical ambitions are also a cause for concern.
Analysts at Capital Economics described the economic plans that emerged from the confab as “more cautious and dovish than seemed likely given the pro-growth messages leading up to the event.”
TS Lombard’s Rory Green took a similar view, saying Xi appears to be taking a relatively “passive” stance on growth. The president appears to be leaning on Beijing’s lifting of the zero-Covid policy and removing some of the impediments to growth of recent years, such as: B. Raids on property developers to revive the economy rather than actively trying to juice it.
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A less aggressive approach to growth could be good news for world central bankers, as it could mean China’s recovery is likely to have less of an impact on global inflation than it has in the past. A recovery based more on consumer spending than stimulus building would likely have less of an impact on commodity prices than in the past.
Policymakers reiterated that housing is still “for living, not speculation,” reflecting efforts to stem housing bubbles, even as they spoke of stabilizing leading real estate developers after the recent defeat.
While factory activity has been strong and export activity higher over the past month, economic growth still depends on the Chinese consumer and whether spending recovers from a surge fueled by the end of Covid-19 lockdowns. Although the government report said it would create 12 million jobs, it did not present any new broad-based stimulus measures, Green noted.
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While Chinese corporate earnings will continue to improve as the economy strengthens, adding further lift to the market, Capital Economics’ John Higgins said in a note that the government’s overall agenda did not appear to have changed and that uncertainty was over China’s geopolitical ambitions.
Adding to concerns about potential government action, veteran emerging markets manager Mark Mobius told Fox Business last week that he couldn’t withdraw his money from an account in Shanghai, warning others to be “very cautious” about investing in it Country and USA to be the increasing grip of the government.
Mobius, who now heads Mobius Capital Partners, was unavailable for further comment, and other asset managers spoke out Barrons They had no problems repatriating funds. But the comments – on top of developments like the recent jailing of Chinese financier Bao Fun and Alibaba Group
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Jack Ma, who disappeared from public view after his company’s crackdown in 2020 and relinquished control of the company he founded last year, is fueling some investors’ caution about China.
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For Howie Schwab, lead manager of emerging markets growth strategy at Driehaus Capital Markets, these issues – including Ma’s resignation – are among his top concerns about China. “Probably my biggest concern is wealth leaving the country. The social contract and trust in the government have been shaken,” says Schwab. “Maybe that’s a shot across the bow. If I’m an entrepreneur in my 20’s the last thing that makes me want to stay and start a business because if it gets too successful it can be taken away from me [like with Ma].”
Schwab’s portfolio at Driehaus is underweight Chinese stocks.
In an email, Michael Hirson, head of China research at 22V Research, says the domestic business community is still watching whether policymakers back their recent rhetoric to level the playing field for companies competing against state-owned companies for protection improve property rights.
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As for the risk of capital controls, Hirson said he doesn’t expect the government to tighten them unless Beijing believes financial stability is at risk. He pointed out that China has faced heavy outflows of funds over the past year without setting any limits.
Next to watch are signals from Xi’s new finance team, who will be appointed on March 12 when Congress is expected to conclude. Others are also awaiting further policy directions from an upcoming speech by new Premier Li Qiang.
TS Lombard’s Green expects China officials to remain focused on quality growth — expansion that isn’t overly debt-dependent. Security and technology innovations are likely to be another priority amid ongoing geopolitical tensions, especially as the US considers further restrictions on China’s access to advanced technology.
Write to Reshma Kapadia at [email protected]
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