Chinese National Congress Could Unlock Policy
The conservative nature of recent policy choices is partly driven by the impending 20th National Congress of the Chinese Communist Party, which convenes this week. China’s hallmark political forum meets every five years to elect and appoint leaders and regroup on domestic and foreign policy agendas. With many senior officials expected to move into different roles or step down after the event, the inclination has been to leave major policymaking to the next government. This likely explains in part the absence of a more comprehensive response to the housing slump—a major drag on growth.
As for lockdowns, given how closely President Jinping Xi has been associated with the zero-COVID policy, it stands to reason that control measures remained stringent leading up to the Congress. Given the dramatic growth slowdown and rising social cost of the zero-COVID policy, we expect a gradual easing of current restrictions in the wake of the Congress. However, given China’s low vaccination rates among the elderly (just 67% of those over age 60 have had a third shot) and generally low virus exposure at the local level, we expect a cautious approach, at least at the outset. A renewed drive to boost vaccination levels is a wild card that could accelerate this process.
The Ripple Effect of Better China Growth for Multi-Asset Investors
Policies to stabilize the property sector, a gradual easing of COVID-19 restrictions and more infrastructure investment could lift growth from current lows, but we don’t expect a return to the investment-led boom of the 2000s. We expect the Common Prosperity theme to continue driving a shift from “growth at all costs” to an emphasis on more equitable growth. Real estate’s potential recovery will likely be very different relative to past cycles.
Accelerated renewables investment could be another important outcome post-Congress. China is among the countries that have suffered from extreme weather events, and it generates a significant share of global emissions. China already has significant investment in renewables technologies. For example, the country accounted for 53% of 2021 global electric vehicle sales. Specific policy actions will take time to play out after the Congress, but we expect China to see a recovery from 2022 in 2023. Investment growth has historically risen in the year following the NCCPC.
From a multi-asset perspective, the implications of improved growth in China’s economy extend well beyond its borders—lifting EM and potentially putting a floor under global economic growth. That could have meaningful implications for asset-allocation decisions.
