China vows to keep growing as pressure on the economy mounts
The next COVID-19 shutdown is weighing heavily on China’s business activity, consumer confidence and financial markets, adding to a sharp slowdown in the global economy due to rising inflation and interest rates.
Ultimately, electric car maker NIO said it was halting production in the eastern city of Hefei due to rising COVID-19 cases, and Yum China, the operator of the KFC and Pizza Hut chains, said it was temporarily closing or reducing services in more locations. It has more than 1000 restaurants in China. The standard factory that produces Apple iPhones was also affected.
Xi was sworn in for a third term as general secretary at the ruling Communist Party’s congress last month, where he called on the party to prepare for adversity and strengthen national security, and renewed support for the zero-sum policy despite the fragile economy.
In pre-recorded interviews for the Hong Kong Global Financial Leaders Investment Summit, senior officials from China’s central bank, securities regulators and banks assured their audience via video link that China would maintain stability and stick to its commitments in currency and real estate markets. economic strategy supporting development.
“International investors should read President Xi’s business report to the congress more carefully,” said Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC).
“He reiterated that economic growth is central to all the work of the party and the country, and this is very important,” he said, indicating China’s total focus on growth.
Fang also criticized international media coverage, saying that many reports “do not really understand China well” and are short-sighted.
As foreign funds depart, Chinese investors are snapping up cheap shares of mainland companies, arguing that foreign perceptions of China are too negative.
OPEN DOOR POLICY
People’s Bank of China (PBOC) Governor Yi Gang said China will continue to regulate its markets.
“The reform and open door policy will continue,” Yi said.
“China’s economy has broadly remained on track despite some challenges and downward pressures,” said Yi, who appeared to allay concerns about the impact of the COVID-19 lockdown and a housing market slump.
“I expect China’s potential growth rate to remain within a reasonable range,” Yi said, citing the country’s “super large” market, rising middle class, technological innovation and network, and high-quality infrastructure.
Separately, in a book titled “Further Reading of the Report of the 20th Communist Party Congress” and quoted by local media on Wednesday, Yi said China was capable of maintaining “normal” monetary policy and interest rates.
Global interest rate hikes have put pressure on yuan-denominated assets and China is unlikely to continue cutting long-term interest rates, said Reuters Wang Jun, director of the China Chief Economist Forum.
While other countries have tightened policies to combat rising prices, China has raised concerns about capital flight by implementing accommodative monetary policy to support sluggish growth. This year, the yuan has weakened by about 13% against the dollar.
But Yi said the yuan was appreciating against other major currencies, “maintaining its purchasing power and keeping its value stable.”
“We hope the real estate market can have a soft landing,” said Yi, noting China’s real estate crisis and the sector’s links to many other industries.
With China’s zero-COVID policy, its near-term growth prospects are bleak, at least until winter, if not longer.
Fears of further disruption to global supply chains are resurfacing.
On Wednesday, the Chinese industrial park that houses the Foxconn-owned iPhone factory announced a new lockdown.
“We expect Beijing to continue its zero covid strategy until at least March 2023,” according to Nomura.
After surprisingly strong gross domestic product growth of 3.9% in the third quarter, Nomura expects growth to slow further, with zero or even negative sequential growth compared to the previous quarter.
“We maintain our forecast of 2.8% annualized GDP growth for the fourth quarter with a 0.0% growth forecast.”