This is the first of two notes focused on reading between the lines of the policy announcements at the Chinese Communist Party’s 20th Party Congress, which opened on 16 October and ended on 22 October 2022.
President Xi Jinping’s opening address did not contain any surprises. For those betting on big policy changes, this no-surprise policy address was a surprise. Mr. Xi’s address put to rest speculation about:
1) An exit from the zero-Covid Policy (ZCP) and,
2) Aggressive policy easing after the Party Congress.
His announcements focused on medium- and long-term policy objectives that have been well communicated to the public over the past year. While reaffirming that GDP growth would remain a, but not the, top policy priority, he emphasised:
- The importance of economic development to put China on a sustainable growth path (and de-emphasised the importance of GDP growth targets),
- The medium-term goal of making China a “moderately affluent” society by 2035, an objective announced earlier under the “common prosperity” policy, which implies an average GDP growth rate between 4.5% and 5.0% a year through 2035, and,
- The roles of both state-owned enterprises and private companies in structural reforms, an initiative that emphasises the private-sector’s role and was imbedded in the strategic reform policy shift under the “dual circulation” policy framework during the second half of 2020.
What all this means is a continuation of structural reform, macroeconomic policy prudence and systemic stability and sustainability. President Xi’s emphasis on quality growth through continued reforms dampened speculation about any major post-Congress easing of monetary policy.
His reiteration of the government’s commitment to the dynamic ZCP, and official statements in the week before the Congress, put to rest speculation about an early exit from ZCP after the Congress.
Any major relaxation of the zero-Covid policy will depend on:
1) An increase in the vaccination rate for the booster shot among the elderly (which is only 38% at the time of writing) and,
2) A successful development and rollout of locally made mRNA vaccines to the population. A reasonable timeframe for these things to happen is in the second half of 2023, if not later.
What was new in Xi Jinping’s opening address was an explicit toughening of the policy stance on securing reunification with Taiwan, a reaffirmation of Hong Kong’s ‘one country two systems’ model, and military upgrading through technology enhancement.
One analysis has compared the number of times major keywords were used in President Xi’s speech at this Party Congress with his speech at the 19th Party Congress in 2017. The proposed conclusion is that there was a shift in the policy emphasis toward “security”, “modernisation”, “socialism”, “people” and “military” away from “growth”, “governance, “economy” and “market”.
President Xi’s emphasis on China’s socialist market economy underscores our view that Beijing is using the market as a strategic tool for implementing reforms under the government’s guidance, but not allowing free-market forces to drive change. We believe the expectation of some analysts of an opening up of China to become a market-driven system is mistaken. This means investors should not blindly focus on private-sector companies in China, but should identify industries and sectors that are aligned with Beijing’s strategic development interests.
Given continued zero Covid policies and macroeconomic policy prudence, any major market re-rating for China A-shares is unlikely in the short-term, in our view. The market’s valuation is nonetheless attractive, with MSCI China and CSI300 indices trading at 1.2 and 0.6 standard deviations below their respective 10-year averages at the time of writing. This argues for continued strategic positioning in A-shares, especially after GDP growth expanded a better-than-expected 3.9% year-on-year in the third quarter of this year.
The increased emphasis on national security, technological innovation, high tech development and social stability reflects the medium-term policy priorities that, in turn, determine China’s investment decisions, notably the themes of common prosperity (consumption upgrading) and hard tech development.
 “China: Takeaways from President Xi’s Opening Remarks at the 20th Party Congress”, Goldman Sachs Economics Research, 16 October, 2022, Hong Kong.