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, will have little choice but to step up stimulus to revive an economy eroded by COVID-19, policy insiders said and analysts on Monday, while revealing. Xi Jinping’s new leadership team tackled the markets.

On Sunday, Xi was confirmed for an unprecedented third term as president and introduced a Politburo Standing Committee stacked with loyalists including Li Qiang, the Shanghai Communist Party chief who is now succeeding Li Keqiang as premier.

Li Qiang will be tasked with driving growth to deal with widespread job losses that could undermine social stability, at a time when Xi is putting more emphasis on security.

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He will inherit an economy, the world’s second largest, that has been dragged down by the tight curbs of COVID and a deepening property crisis, although hopes for any meaningful reforms have dwindled as the Party Communists are in charge of tightening their grip on the economy.

On Monday, Hong Kong stocks fell, Chinese stocks fell and the yuan weakened after the new line-up of China’s top ruling body raised fears that Xi would double down on ideologically-driven policies at the expense of the growth.

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“The curbs of COVID will not be released sharply any time soon, the real estate sector will not pick up soon, the pro-reform camp is completely wiped out, hitting the confidence of investors,” said a policy source on condition of anonymity.

“The new economic team will have little choice but to resort to a big stimulus next year to support the economy, focusing on investment and major projects,” the source said.

He Lifeng, another Xi acolyte, will replace China’s economic tsar, Liu He, a US-trained economist seen as the brains behind earlier reforms. 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 noted the botched handling of the Shanghai COVID-19 outbreak that led to a two-month shutdown of its 25 million people, and his lack of experience in an economic role at the national level.

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“What we should do urgently is to revive the economy,” Jia Kang, former head of the Finance Ministry think tank who runs China’s New Supply-Side Economic Academy, told Reuters.

“We are facing the problem of declining expectations and confidence and it is empty talk if we cannot revive the economy,” Jia said.

BIG CHALLENGES

Xi’s push for a state-led economic model at the expense of market reforms could jeopardize his long-term goal of turning China into a major world power by mid-century, policy insiders and analysts said.

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

“With national security raised to an all-time high amid rising geopolitical risks, how to strike a balance between development and security may be one of the most important questions for leadership in the coming years,” he wrote Citi analysts 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 policy agenda issues from the Politburo meeting and the Central Economic Work Conference, both expected in May of Christmas.

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In September, the surveyed urban Chinese unemployment rate rose to 5.5%, the highest rate since June, as the COVID curbs put pressure on businesses, and 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 at 3.2%. The poll showed that China’s growth could pick up to 5.0% in 2023, helped by a lower base.

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

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

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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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