Xi Jinping’s Party Congress speech: Yes to zero-Covid, no to market reforms?

Hong Kong
CNN business

Although China’s economy is plagued by problems ranging from the real estate crisis to youth unemployment, Xi Jinping did not offer big ideas for getting the country back on track during a two-hour opening speech at the Communist Party Congress on Sunday.

China’s leader is expected to secure an unprecedented third term at the week-long congress. The priorities presented at the political meeting of more than 2,000 party members will also set China’s course for the next five years or more.

In his speech on Sunday, Xi struck a confident tone, pointing to China’s growing power and growing influence in its first decade in power. He also repeatedly emphasized the dangers and challenges facing the country, including the Covid pandemic, Hong Kong and Taiwan – all of which he said China emerged victorious from.

But experts are concerned that Xi offered no sign of moving away from the country’s rigid zero-Covid policy or a tight regulatory stance on various businesses, both of which have hampered growth in the world’s second-largest economy.

“Yesterday’s speech confirms what many China watchers have long suspected: Xi has no intention of embracing market liberalization or relaxing China’s zero-Covid policies, at least not anytime soon,” said Craig Singleton, senior China fellow at the Foundation for Defense of Democracies. A think tank based in DC.

“Instead, it wants to double down on policies aimed at security and self-reliance at the expense of China’s long-term economic growth.”

China is still the last economy in the world to follow strict zero-Covid measures, which aim to eliminate chains of transmission through border restrictions, mass testing, extensive quarantines and uncompromising lockdowns.

And China’s economy is in bad shape. Growth has stalled, youth unemployment is at a record high and the housing market is a disaster. The ongoing Covid lockdowns have not only wreaked havoc on the economy, but also fueled greater social discontent.

Last week, two large banners were hung at an overpass on a major road in Beijing, protesting against Xi’s Covid policy and authoritarian rule. It was a rare protest against the country’s leadership, expressing public frustration and anger.

Many international institutions, including the IMF and the World Bank, have recently downgraded China’s GDP growth forecasts for this year, citing zero-Covid as one of the main drags.

Xi, however, praised the government’s commitment to zero-Covid, saying it has “achieved significant positive results”.

Xi’s speech — a summary of the Communist Party’s work report, or action plan — was also short on concrete solutions to other challenges facing the economy in the short term.

“We believe that the ongoing Party Congress may not be a turning point for major policy changes,” Goldman Sachs analysts said on Sunday, adding that they believe China will not be able to loosen Covid restrictions until at least the second quarter of 2023.

Regarding the real estate sector, Xi emphasized the need to provide affordable housing and reduce speculative demand, but there was no specific mention of the real estate downturn, which is it has emerged in a major crisis in recent years, threatening economic and social stability.

“We maintain our view that a comprehensive solution to the agreed property sector may not be presented until after March 2023, when the political reshuffle is fully completed,” Nomura analysts said on Monday.

Xi also failed to mention record youth unemployment, which is largely the result of a year-long crackdown on the tech industry set against the backdrop of punishing zero-Covid policies.

The full version of the official work report of the 20th Party Congress, which was published After his speech, Xi stressed the need to continue the party’s “anti-monopoly” crackdown and regulate “excessive revenues,” a sign he will continue to crack down on big business and wealthy individuals.

Beijing’s crackdown on the country’s private sector, under the banner of Xi’s “common prosperity” campaign, has hit companies ranging from technology and finance to gaming and private education.

The government has defended the campaign as necessary for “social justice” and to reduce the income gap.

In his speech, Xi also made it clear that development is a “top priority” and insisted that he continues to focus on “high-quality growth.”

That could allay some market concerns that the government was not paying much attention to economic growth, UBS analysts said.

However, to meet Xi’s goal of making China a “medium-sized developing country” by 2035, the country’s annual real GDP growth must average around 4.7% per year from 2021 to 2035, UBS analysts said. That could be “quite a challenge,” they said, adding that they expect China’s potential growth to average between 4% and 4.5% this decade, and to decline after 2030.

Meanwhile, a comparison between this year’s speech and Xi’s last speech at the 19th Party Congress in 2017 reveals a potentially worrying trend.

The frequency of words such as “security”, “people” and “socialism” used in 2022 increased compared to 2017, while the words “economy”, “market” and “reform” decreased, Goldman analysts said.

The change was also noted by analysts at Nomura, who said it could be a “change in the mandate of the party”.