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 option but to step up stimulus to revive an economy battered by COVID-19, policy insiders and analysts said on Monday that the unveiling of Xi Jinping’s new leadership team sent markets reeling.

Xi was confirmed for an unprecedented third term as president on Sunday and installed a Politburo standing committee with loyalists including Li Qiang, the Shanghai Communist Party chief who is now in line to succeed Li Keqiang as premier.

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

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He will inherit an economy, the world’s second largest, that has been dragged down by strict COVID curbs and a deepening property crisis, while hopes for any meaningful reforms have dwindled as the ruling Communist Party tightened its grip on the economy.

On Monday, Hong Kong stocks tumbled, Chinese stocks fell and the yuan weakened after the new lineup of China’s top governing body raised fears that Xi will double down on ideology-driven policies at the expense of growth.

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“The COVID curbs will not be sharply loosened anytime soon, the real estate sector will not recover in the near term, the pro-reform camp has been completely wiped out, which hits investor confidence,” a policy source said on condition of anonymity.

“The new economic team will have few options other than to resort to significant stimulus next year to support the economy, focusing on investment and major projects,” the source added.

China’s economic czar, Liu He, an American-educated economist seen as the mastermind behind earlier reforms, will be replaced by He Lifeng, another Xi acolyte. Pro-reform central bank chief Yi Gang is likely to step down when he reaches mandatory retirement age in 2023, Reuters reported.

Li Qiang’s elevation surprised many policy insiders who pointed to Shanghai’s failed handling of a COVID-19 outbreak that led to a two-month collapse of its 25 million people, and his lack of experience in an economic role at the national level.

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“What we urgently need to do is revive the economy,” Jia Kang, former head of the finance ministry think tank that runs the China Academy of New Supply-Side Economics, told Reuters.

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

ASSEMBLY CHALLENGES

Xi’s push for a state-led economic model at the expense of market reforms could jeopardize his long-held 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 kicked off historic reforms, allowing more private enterprise and opening the economy to foreign investment.

“With national security elevated 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 the leadership in the coming years,” Citi analysts wrote 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 clues from a Politburo meeting and the annual Central Economic Work Conference, both expected in December.

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In September, China’s surveyed urban unemployment rate rose to 5.5%, the highest since June, as COVID restrictions hit businesses, with the unemployment rate for job seekers aged 16 to 24 at 17.9%.

China is on track to miss its annual growth target of around 5.5% – the latest Reuters poll predicts 2022 growth at 3.2%. The poll showed China’s growth could pick up to 5.0% in 2023, helped by a lower base.

Xi’s standing committee picks disappointed investors who had hoped he would retain some reform-minded officials, including former Guangdong party boss Wang Yang.

“There is probably more regard for Xi Jinping’s own views on how to move the country and the economy forward,” 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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