Xi Jinping will face challenges in boosting China’s economy, experts say

The president Xi Jinping will command the China for the third consecutive term, after a decision by the Chinese Communist Party at the party’s 20th Congress, and must face economic challenges ahead of the Asian country in the next five years, according to experts heard by the CNN Brasil Business .

One of the main challenges is maintaining robust Chinese growth. This Monday (24) it was announced that China’s Gross Domestic Product (GDP) grew 3.9% in the third quarter of the year, above the market forecast, which was up 3.4%, but below the data. from previous years for the period.

For Evandro Menezes de Carvalho, coordinator of the Brazil-China studies center at FGV, the result reveals a recovery of the Chinese economy due to the resumption of the dynamics of international trade with the main trading partners, but it is still not the desired percentage to maintain the rate employment, among other objectives.

“The forecasts, which before the pandemic were for growth of around 6% per year, started to become more difficult for a number of reasons. A lot has changed from 2019 to now, and now, estimates of a 4% growth cause concern for the Chinese government”, he pointed out.

For Roberto Dumas, an economics professor at Insper, the GDP for the third quarter should be treated with caution, despite being above market projections.

“I don’t think it’s such a cool and positive GDP, because what the Communist Party wants is for all growth to be at least 5%, but it really surprised me. In the end, Chinese GDP ended up being pulled by infrastructure as the country failed to advance in the other sectors that drive growth,” he said.

The economist highlighted that the focus on investment is part of the Chinese government’s plan to boost the economy, while exports suffer from sanitary blockages and more restrictive measures and a less vigorous domestic consumption.

“They had to make these investments, as it would not have been feasible to drop a meager GDP in the middle of the 20th Congress of the Communist Party, which ended up putting all power in Xi Jinping’s lap,” added Dumas.

market reaction

Roberto Dumas also spoke about the fall in Asian stock markets as a reflection of the Chinese president’s maintenance of power. “Stock markets are falling as Xi Jinping is putting more money into state-owned companies, asking banks to lend capital to these companies, when it would be more advantageous to invest in private companies, and this should lead to even slower growth in China, which scares off investors,” he explained.

On the trading day after Xi Jinping cemented power for another five years, the Hang Seng index fell 6.36% in Hong Kong, the biggest daily drop since November 2008. On the Chinese stock market, the Shanghai Composite tumbled 2.02 %, and the less comprehensive Shenzhen Composite dropped 1.76%.

During the Chinese congress, Xi Jinping unveiled his top leadership team for the next five years with seven members who experts believe are more closely following his ideas. On the other hand, members who could threaten Xi’s power were removed from the scene, such as the country’s former president Hu Jintao.

“I believe that this reaction goes through the definition of the Communist Party of China committee, which was filled by people extremely loyal to Xi Jinping. Party members who might have some sort of opposition or have a different view of the president were not reappointed, so the more nationalistic and non-market line of thinking persevered,” argued Fernando Fenolio, chief economist at WHG.

“Perhaps we are seeing a new era that is economically and politically more nationalistic, and naturally the market reaps greater uncertainty about the future of the country and to what extent a lesser presence of the private sector will hinder growth, profit and asset valuation”, added the economist.

Xi Jinping’s continuation in power requires a change in Chinese leadership policy. By 2017 —the year of the last ceremony among CCP members—a new secretary general was appointed. However, five years ago, Xi Jinping broke with tradition and did not raise a potential successor to the Standing Committee. Months later, he changed the legislature and eliminated term limits for China’s president.

The rule stated that senior officials aged 68 and over at the time of the congress must retire. But at age 69, Xi Jinping would flout that norm and remain in power. He is the first leader since Mao Zedong — the founder of communist China — to have his philosophy added to the Constitution while he was still in power.

Chinese growth

Since China began doing business with the world more openly and reforming its economy in 1978, GDP growth has averaged more than 9% a year, according to World Bank data. However, this year, the projection is that the Asian country will slow down to 2.8%, compared to growth of 8.1% in 2021, which was already below the historical average.

Chinese growth was directly impacted by the lockdowns announced this year due to outbreaks of the Ômicron variant. They were held in important regions for the country’s economy, such as Shanghai and places close to the capital Beijing. The lockdowns restricted access to ports, which in turn caused a supply shock due to high demand that could not be met.

The industrial sector and the service sector were heavily impacted by Xi Jinping’s “Covid zero” policy. The Industrial Purchasing Managers Activity Index (PMI) fluctuated around 50 points throughout the year — precisely the dividing point that points to contraction (below 50 points) or expansion of activity (above 50 points).

The services PMI, on the other hand, had sharper drops throughout 2022, with a result of 36.2 points in April, the worst of the year so far and well below the 50-point line.

“This makes the Chinese government bet on something we call ‘white elephants’ to leverage the economy, that is, make it grow through investments in infrastructure,” said Roberto Dumas.

“Although the president of China is betting on changing a lot, he continues with the plan to support the policy aimed at consumption, towards urbanization and giving more purchasing power to the Chinese population”, he added.

Conflict with Taiwan

China-Taiwan relations have seen turmoil throughout 2022, but have been shaken sharply since August, when US House of Representatives Speaker Nancy Pelosi visited Taiwan in a sign of American support for the local government, which displeased him. the Chinese.

Since then, China has shown its interest in claiming the island nation as part of its territory more vigorously and the military pressure on the neighboring government has been increasing.

Taiwan President Tsai Ing-wen pledged this month to bolster the island’s fighting power and determination to improve its defenses. The leader is overseeing a military modernization program and increasing defense spending after recent episodes.

Amid negative reactions from the West, China has pledged to work for peaceful “reunification” with Taiwan under the “one country, two systems” model, a proposal rejected by the Taiwanese and which has little political support.

“China’s foreign policy towards Taiwan and Hong Kong is very assertive from a Chinese point of view. This is because they are intransigent in relation to these territories, signaling that no country should interfere so as not to cause conflict. Xi Jinping himself has already exposed that he wants to resolve the situation in Taiwan by the end of his term,” Roberto Dumas said.

In Evandro de Carvalho’s view, another challenge of the Xi Jinping government involves a need to try to reverse the scenario of adversity encountered with Western countries, especially the United States, which does not accept the country’s superiority over Taiwan.

“The US-China relationship was already a concern in the Obama administration and intensified under the Trump administration with the trade war. Now it reaches some more acute stages even in the Biden administration because of Taiwan,” he declared.

Relationship with Brazil

Specialists believe that, even if there are more solid changes in the perspective of Chinese economic performance and a slowdown in global demand, Brazilian exports to the Asian country should not be affected.

“Brazil exports a lot of agricultural products to China and we have a lot of space in the commodities sector. In a world where China wants to distance itself from the US, instead of importing US grains, it can trade even more with South America, and this is an opportunity for Brazil,” said Fernando Fenolio.

The economist pointed out, however, that metallic products such as iron ore can be harmed due to the Chinese real estate crisis, which leads the country to consume less metallic commodities.

This is the same view as Dumas, who stressed the importance of importing commodities for the Chinese to achieve their economic goals.

“Recent events change little for Brazilian commodities, as the Chinese government with its nationalist strategy continues to support a policy focused on consumption, urbanization and giving more purchasing power to the Chinese population, and for that there must be enough commodity available” , he concluded.