China: The Strong Bullish Case For 2023

(MENAFN– Asia Times)

HONG KONG – Several global investment houses have recently upgraded their 2023 growth forecasts for China from the 4% range to well above 5%. We believe that’s much too conservative. An“explosive growth spurt” (in the words of a most experienced Hong Kong-based China investor) in the 7-8% range is highly likely as the current Covid wave recedes.

The basic premise for this, as we have written and reiterated on several occasions since just prior to the China Communist Party’s 20th Congress, is that – contrary to the biased and ill-informed“reporting” of the Western press – General Secretary Xi Jinping’s third term will not be characterized by further tightening of centralized controls of the economy and suppression of private-sector initiative by a tight-knit group of handpicked Xi loyalists, but rather by the very opposite.
This could and should have become clear to any unblinkered observer the moment Shanghai party chief Li Qiang walked out in the number two position behind Xi at the introduction of the new Politburo Standing Committee upon the conclusion of the party congress.

Li, whose political career started in Wenzhou, a proud bastion of free enterprise in Zhejiang province, opened the new STAR market of the Shanghai Stock Exchange and helped Elon Musk build the Tesla Gigafactory in Shanghai in record time during his Shanghai tenure, to mention just two of his hallmark initiatives.

Yes, Li is a Xi loyalist: He served under Xi in Zhejiang. But why would Xi pick a loyalist of Li’s pedigree to become his prime minister in charge of the economy if he wanted to pursue policies of the opposite direction? It’s a self-contradictory“analysis” only the hapless inhabitants of the Washington-attuned echo chambers could produce.

Li Qiang is now China’s No 2, an appointment that shows Xi’s dedication to a high-tech-led future for China. Image: Screengrab / NDTV

Since Li’s designation to take over as premier at the 14th National People’s Congress this March, all relevant Politburo and government agencies have uniquely pointed in the direction of a strongly growth-oriented, high technology-led, consumption-driven and monetary policy-supported economy.

Bloomberg quotes former Bocom International head of research Hong Hao, an outspoken China bear, as noting that there had been“policy pivots in just about every single sector.” This, of course, includes first and foremost the radical decision to totally scrap the“zero-Covid” policy of the past three years.

Significantly, Li had opposed the drastic April 2022 Shanghai lockdown, prompting Beijing to deploy the Iron Lady, vice-premier and politburo member Sun Chunlan, to Shanghai to get it done.

That, in turn, prompted many Western observers to rule out Li as an incoming Politburo Standing committee member. Alas, Sun has since retired from the Politburo and Li is about to take up his position at the head of government.

As we reported on November 29, even just prior to the 20th Congress, the decision had been reached to abandon zero-Covid and henceforward treat the disease as endemic rather than a pandemic plague.

To be sure, multi-city protests expedited the policy pivot. But clearly, Xi had concluded that zero-Covid was not compatible with necessary economic growth acceleration and decided on a radical move to cut the Gordian knot.

It was and remains a high-risk decision. But there was no practicable choice and the opportunity to go for herd immunity was with the more infective, but less virulent, omicron Covid variant.

As for the multiple faster-growth policy pivots, we shall only list the most relevant and impactful ones here:

  • Guo Shuqing, Communist Party chief at the People’s Bank of China (PBoC), told Xinhua news agency on January 7 that the crackdown on fintech operations and platforms of the 14 main internet companies is“basically” over.“Next, we’ll promote the healthy development of internet platforms… We’ll encourage them to come out strong in leading economic growth, creating more jobs, and competing globally,” Guo said. – Perhaps not by accident, Alibaba’s Jack Ma announced on the same day that he was ceding control of Ant Financial, the fintech Alibaba affiliate.
  • The PBoC has said that it will do whatever it takes (the famous Draghi vow) to lend monetary policy support to healing the property market and the overall growth of consumption and investment. After peaking at 2.8% YoY in September 2022, China’s inflation rate dropped to 1.6% in November – meaning deflation is now more of a threat. There’s ample room for monetary easing from the current prime loan rate of 3.65%.
  • Liu He, the retiring economic car, has been put in charge of fixing the property market. He, more than anyone, has the credential and political support to do so.
  • More affordable energy is needed to power the economic recovery. China has filled its reserves with cheap Russian oil. It has now lifted the two-year ban on the import of Australian coal as well.
  • January 8 saw the reopening of the Hong Kong-mainland China border. Aside from the pure joy of family reunions after three years, cross-border flows of people and goods are critical to the recovery of the Hong Kong and Guangdong province economies, China’s most productive along with Shanghai.

    China has plenty of room for monetary easing. Photo: Facebook

    Overall, two developments stand out: First, the Central Economic Work Conference of December 2022, which set out economic policy for 2023, called for monetary policy support for growth acceleration. It also issued an explicit call for the rapid development of the digital economy and support for the role of online platform enterprises in economic growth.

    Second, Chinese households accumulated over RMB2 trillion (US$295 billion) in excess savings in 2022, which is expected to give a strong boost to consumption.
    Lifting of policy restrictions and pent-up savings are powerful growth drivers. By appointing Li to replace outgoing wet squib Li Keqiang, President Xi has set an unmistakable signal for his priorities in his third term.

    Follow Uwe Parpart on Twitter at @uwe_parpart