Yesterday marked the start of the long-awaited Chinese Communist party congress. Taking place twice a decade, it is the most important meeting of China’s ruling Communist party and its role is to announce key appointments, including the party leader, as well as outline the direction that will be taken over the next 5-year plan. With the doors now open for Xi Jingping to be reappointed for a third term (a first since the constitutional limits had been removed), all attention has been focused on any and all measures and directions that will be announced as part of the next five-year plan for the world's second-largest economy.
This comes at a relatively critical point for China’s economy as well as the global economy as a whole. Beyond the internal political issues as well as the geopolitical factors that will be taking center stage such as Xi Jipings’s increased consolidation of power within the party and China’s stance on issues such as Hong Kong and Taiwan, we will be able to see a glimpse as to how the party will choose to move in terms of new policies to tackle the internal economic issues now being faced.
These include the tackling and restoring of China’s real estate market which has been facing considerable issues since Evergrande announced difficulties in payments on its debt last summer, as well as a considerable slowdown in China’s economic growth during the same time frame. As of the party congress opening speech on Sunday, the market has been getting mixed signals as to what we can expect with regard to these latter two issues, as President Xi Jinping’s two-hour address focused more so on policy goals with regard to national security, the environment as well as technology.
There was little discussed, as of yet, as to the housing market, measures to prop up the economy, or any potential shift away or loosening of its Zero-Covid policy (a focus that has been re-ignited of recent as we see another rise in infections in Shanghai and other large cities) that has weighed so heavily on the economy over the past few months.
As much as most would like to view this party congress as disconnected and having a limited impact on global markets, when taking into account what a huge role China plays within global shipping, the effects that the separate shipping markets could face are critical. We have already seen considerable woes being expressed as to the nearterm outlook for global demand of iron ore. Without a considerable restructuring and re-balancing of the real estate market in China, internal demand for steel is unlikely to see any major positive shift over the next few months.
Similar worrying signals have been seen with regard to the crude oil market, although these greatly extend beyond China and its economic policies and are typically more so founded on the fact that the high inflation and energy costs witnessed across the world could potentially drag the global economy into recession. Overall, being that we are talking about the world’s second-largest economy as well as a top performer in terms of economic growth among the major economies of the world, any and all policies that are able to help prop up economic activity and internal consumption would set the pace for the global economy.
Where China able to find policies to reverse many of the recent trends noted within its economy, we would inevitably see substantial support being provided to other major economies and emerging markets and a positive footing from which global international trade and the global economy could shift away from a potential global recession.