China President Xi Jinping stood firm on his policies in a two-hour speech at the 20th National Congress of the Communist Party of China.
Xi said that per-capita GDP would rise to the level of a "medium-developed country" in a "giant new leap" by 2035. While he did not give a specific number, economists told Bloomberg that would mean doubling GDP and per-capita income, with an average GDP growth rate of 4.7%.
Standing firm: Xi focused on economic development that he said would not sacrifice national security. Importantly, he announced no changes to his Zero-COVID policy.
“In responding to the sudden attack of COVID-19, we put the people and their lives above all else and tenaciously pursued a dynamic Zero COVID policy," Xi said. "We have protected the people's health and safety to the greatest extent possible and made tremendously encouraging achievements in both epidemic response and economic and social development.” Still, there is a chance that policy evolves.
“What happens to Hong Kong and Macau following the Zero Plus Three initiative may hint at what would likely occur inside China," Gordon IP, Chief Investment Officer, Fixed Income at Value Partners Group, told Seeking Alpha.
Xi also hit the regular themes of economic development as a priority and "common prosperity": “High-quality development is the top priority of building a socialist modern country in all aspects. Development is the party’s top priority in governing."
"We will promote equality of opportunity, increase the income of low income earners and expand the size of the middle income group. We will keep income distribution and the means of accumulating wealth well regulated."
Global impact: The speech did little to quell concerns about an adversarial relationship between China and the West. Chip stocks were rattled last week, as companies and investors continued to suss out the implications of new U.S. rules designed to keep certain semiconductor technologies out of the hands of the Chinese military. The regulations that went into effect earlier in the month prevent U.S. companies from working with Chinese chip manufacturers. By mid-week, several U.S. chip-equipment makers such as Lam Research (LRCX) and Applied Materials (AMAT) had reportedly begun pausing their operations in China in order to get in line with the new American guidelines. However, despite a brief reprieve on the stock market, the sector swooned on Friday.
SA contributor ZMK Capital wrote today that for "punters looking to take a bet on such a cloudy Sino-economic panorama, Direxion Daily FTSE China Bear 3x Shares (NYSEARCA:YANG) may be an attractive option." ZMK is bearish on China, but is neutral on the leveraged YANG, which looks more like a "punctual play" on China downside rather than a long-term investment.
"Despite all the short term negatives, in our view China will continue to grow and develop, albeit at a slower pace than before," SA Contributor Binary Tree Analytics said. "We are currently experiencing the first innings of a global recession, recession which in our opinion China has been experiencing since the start of 2022."
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