China vows commitment to growth as pressure on economy mounts

HONG KONG/BEIJING (Reuters) -Chinese policymakers pledged on Wednesday that growth was still a priority and they would press on with reforms, in an apparent bid to soothe fears that ideology could take precedence as Xi Jinping began a new leadership term and strict COVID curbs exact a growing toll on the world’s second-largest economy.

Renewed COVID lockdowns are weighing heavily on China’s business activity, consumer confidence and financial markets, adding to a sharp downdraft on the global economy from surging inflation and rising interest rates.

In the latest fallout, electric vehicle maker NIO said it suspended production in the eastern city of Hefei amid rising COVID-19 cases and Yum China, operator of the KFC and Pizza Hut chains, said it was temporarily closing or reducing services at over 1,000 of its restaurants in China.

Luxury goods companies Estee Lauder (NYSE:) Cos Inc and Canada Goose Holdings (NYSE:) Inc also cut their full-year forecasts, blaming a hit from persistent COVID-19-related lockdowns and store closures in China.

Xi secured a third term as general secretary at the ruling Communist Party’s twice-a-decade congress last month, when he urged the party to brace for hardship and strengthen national security, and renewed his support for the zero-COVID policy, despite the fragile economy.

In pre-recorded interviews for the Global Financial Leaders’ Investment Summit in Hong Kong, senior officials from China’s central bank, securities and banking regulators assured their audience via a video link that China would keep its currency and property markets stable, and remained committed to a pro-growth economic strategy.

“International investors should read more carefully about the work report that President Xi delivered” at the congress, said Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC).

“There, he re-emphasized the centrality of economic growth in the entire work of the Party and the country, and that’s very significant,” showing China is fully focused on growth, he said.

Fang also criticised international media coverage, saying that a lot of reports “really don’t understand China very well” and had a short-term focus.

As foreign funds head for the exits, Chinese investors have been snapping up cheapened shares of mainland firms, betting that outside views of China have been excessively negative.

OPEN-DOOR POLICY

Yi Gang, governor of the People’s Bank of China (PBOC), said China will continue to deregulate its markets.

“Reform and open-door policy will continue,” Yi said.

Apparently seeking to ease worries over the impact of COVID lockdowns and a property market crisis, Yi said “the Chinese economy has remained broadly on track despite some challenges and downward pressure.”

“I expect China’s potential growth rate to remain in a reasonable range,” Yi said, citing the country’s “super large” market, a rising middle-class, technological innovation and a high-quality infrastructure network.

Separately, in a book entitled “A Supplementary Reading of the 20th Communist Party Congress Report” and cited in local media on Wednesday, Yi said China is in a position to maintain “normal” monetary policy and “positive” interest rates.

Global interest rate hikes have pressured yuan assets, and it is impossible for China to keep cutting interest rates in the long run, Wang Jun, director at China Chief Economist Forum, told Reuters.

While other countries have been tightening policy to battle rising prices, China has implemented an accommodative monetary policy to shore up sputtering growth, raising concerns about capital flight. The yuan has weakened roughly 13% against the dollar this year.

But Yi said the yuan has appreciated against other major currencies, “maintaining its purchasing power and keeping its value stable.”

CRISES

Noting China’s property crisis, and the sector’s links to other many other industries, Yi said, “We hope‌‌ the housing market‌‌ can achieve a soft landing‌‌.”

With China’s zero-COVID policy expected to remain in place through at least the winter, or longer, its near-term growth outlook is bleak.

Fears of renewed disruptions to global supply chains are resurfacing.

On Wednesday, a Chinese industrial park that hosts an iPhone factory belonging to Foxconn announced a fresh lockdown.

“We expect Beijing to maintain its zero-Covid strategy at least until March 2023,” according to Nomura.

After surprisingly high gross domestic product growth of 3.9% in the third quarter, Nomura expects growth to drop again, with zero or even negative sequential growth from the previous quarter.

“We maintain our GDP growth forecast of 2.8% year-on-year for the fourth quarter with a corresponding sequential growth forecast at 0.0%.”

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