China Economic Optimism Returns in Poll as Xi Beats Hu

Communist Party of China General Secretary Xi Jinping
Communist Party of China General Secretary Xi Jinping. Photographer: Tomohiro Ohsumi/Bloomberg

Confidence in China’s economy is at the highest in more than a year amid optimism that the new leadership headed by Xi Jinping will be better for the financial climate, according to a Bloomberg investor poll.

Respondents who see the Chinese economy improving or remaining stable surged to 72 percent this week from September’s 38 percent in the quarterly global poll of investors, analysts and traders who are Bloomberg subscribers. Fifty-three percent said they’re more optimistic about the effect of Xi’s policies on investors, up from 42 percent who were asked in September about President Hu Jintao.

The renewed faith in the world’s second-largest economy reflects data from factory production to retail sales showing growth picking up this quarter after a seven-quarter slowdown. Almost half of respondents anticipate Xi’s government will pursue policies that boost expansion or keep it stable.

“China’s growth trajectory will accelerate moderately on a six- to 12-month horizon based on the new leadership immediately finalizing and implementing projects toward urbanization, rural development and services,” said respondent Brad Bechtel, head of sales at Stamford, Connecticut-based Faros Trading LLC. “Going into 2013 a lot of the concerns regarding China growth falling off a cliff will subside.”

New Generation

The survey of 862 Bloomberg customers was conducted Nov. 27, 12 days after Vice President Xi was confirmed as head of the Chinese Communist Party and the nation’s military, ushering in a fifth generation of leaders who are set to take control. Xi is in line to succeed Hu as president in March as part of the once-a-decade power handover.

The combined 72 percent who see the economy improving or remaining stable, including 28 percent who see it getting better, were both the highest since the question was first asked in September 2011. Twenty-five percent said the economy is deteriorating, the least since the query was first asked and down from 61 percent in September.

Respondents expecting China to offer investors the best opportunities globally over the next year surged by 11 percentage points from September to 27 percent, a two-year high. That was second to the U.S., which was named by 40 percent.

China’s domestic stock market has shown little sign of optimism on growth. The benchmark Shanghai Composite Index had fallen 10.7 percent this year through yesterday, compared with the 12.6 percent gain for the U.S. Standard & Poor’s 500 Index and an 11.2 percent advance in the MSCI World Index of equities. The Shanghai gauge rose 0.9 percent today.

‘Powerful Rally’

“Economic data is showing early signs of bottoming and with a new Politburo installed, we expect cuts in the bank reserve ratio,” said respondent Andrew Swarbrick, head of equity trading at HSBC Holdings Plc in Hong Kong. “Cheap, under-owned and over-sold shares may combine with an improving economy to drive a powerful rally in 2013.”

Nineteen percent of respondents said the new leadership will speed up market-based reforms such as the dismantling of state-owned enterprises. That compares with 6 percent who said changes will slow down, while 54 percent said the current pace will be maintained.

Vice Premier Li Keqiang, set to succeed Wen Jiabao as premier in March, said last week that economic reform must be quickened, citing areas including improving state-owned companies and the taxation system.

Market Opening

“In a sluggish global economy, China will need to attract foreign investments to achieve its growth target,” said poll participant Richard Ho, a quantitative trader at Kokomo Capital Pty Ltd. in Sydney. “This means they are going to need to open the market.”

Among recent signs of accelerating growth in China’s economy was a 20.5 percent surge in industrial companies’ profits in October, after factory production and overseas shipments both rose in the month by the most since May.

Citigroup raised its 2013 gross domestic product growth forecast for China to 7.8 percent from a previous estimate of 7.6 percent, according to a research note Nov. 26.

China must deepen its rural-to-urban population shift to support the growth needed for the nation to overcome the so-called middle-income trap of economic stagnation, Li said Nov. 21 in an article in the Communist Party’s flagship People’s Daily newspaper.

“A younger, more educated leader has taken over,” said Todd Cowle, a poll participant and managing partner at Ultimate Tier Advisors LLC in Plano, Texas. “The growing middle class in China is what will drive the extraordinary growth being experienced there.”

International Ties

The leadership change may be better for China’s ties with the U.S. than with neighbors in Asia, according to the survey. China-U.S. economic relations will improve under Xi in the view of 20 percent of respondents; 10 percent said connections will deteriorate and 57 percent see little or no change.

That compares with 27 percent who said relations will grow more tense with neighboring nations including Japan, South Korea and the Philippines. Forty-one percent see little or no change and 12 percent see improvement. China is engaged in a territorial dispute with Japan over islands in the South China Sea and tensions have led Chinese consumers to shun Japanese cars.

“There is definitely a geopolitical battle going on in the region between the two big economic powers and there doesn’t seem to be room on the block for both of them,” Faros’s Bechtel said. “So I would imagine we continue to see friction there over the coming months.”

The poll of Bloomberg customers was conducted by Selzer & Co., a Des Moines, Iowa-based company. The survey has a margin of error of plus or minus 3.3 percentage points.

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