Xi Sticks to Business-as-Usual Russia Trip Amid Chinese Rout

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Xi Jinping
Xi Jinping during a BRICS summit meeting in Bashkortostan, Russia, on July 8. Photographer: Alexander Vilf/Host Photo Agency/Ria Novosti via Getty Images

Xi Jinping held talks in Russia after leaving China for twin summits hosted by its northern neighbor, as the president sought to convey confidence that his economic team can manage the country’s widening stock market collapse.

Joining Xi’s entourage at a meeting of leaders of the BRICS countries was central bank Governor Zhou Xiaochuan, who cut interest rates last month in a bid to boost the economy. As Xi made his way on Wednesday to three days of gatherings in Ufa, Russia, Shanghai’s benchmark index tumbled another 5.9 percent, down 32 percent from a June peak. Xi’s absence left Premier Li Keqiang in Beijing to manage the market crisis.

Xi has taken personal responsibility for the economy by appointing himself to two main Communist Party committees overseeing economic policies, something traditionally managed by China’s premiers. The president has, however, maintained a low profile as the country’s markets lost $3.5 trillion in value, leaving Li’s State Council and regulators to issue economic statements and announce policy moves.

“People are accustomed to expecting top leaders to make promises to turn around disastrous situations when they occur in China,” said Han Meng, a senior researcher at the Institute of Economics of the Chinese Academy of Social Sciences in Beijing. “So far, he has chosen to let his professional team do the work rather than making a ‘support-the-market’ pledge himself.”

Russian Ties

Xi received a vote of confidence from President Vladimir Putin, and other Russian officials signaled their country is seeking closer financial ties with China, the biggest consumer of raw materials.

“We are well aware of the difficulties that we face in the economy and international politics, but by uniting our efforts we will certainly overcome the challenges we face,” Putin told Xi in Ufa during the first day of meetings between the leaders of Brazil, Russia, China, India and South Africa.

Russia plans to ask China to lift restrictions and allow its banks to invest into Russian bonds, Finance Minister Anton Siluanov said Wednesday. In turn, Russia is ready to buy Chinese securities, according to Siluanov.

Shanghai stocks overtook Moscow-listed equities as the riskiest for investors in the so-called BRICS universe on Wednesday for the first time since the buildup to Russia’s military intervention in Crimea in February 2014, according to options data.

‘Sound and Steady’

While Li hasn’t mentioned the selloff directly, he said at a conference in Beijing on Monday that economic indicators were “sound and steady” and that authorities had “confidence and the ability to deal with all types of risks and challenges,” according to a report on the government’s website.

The State Council issued another broad statement Wednesday night, saying that fiscal and monetary policies continue to take effect, according to the council’s website.

The ruling party is anxious to keep the market rout from undercutting China’s economic recovery and setting off social unrest. During the trip to Russia, Xi will also attend a meeting of the Shanghai Cooperation Organization, a security central to China’s effort in expand its regional influence.

“If he steps in, he’d have to be upbeat and bullish and make it work,” said Fraser Howie, the co-author of the 2011 “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.” “Both Xi and Li haven’t said a thing, because what can they say? They can’t come out and give a bad news story, and there is no good news.”

Government Response

The official response has been aggressive, if not yet effective. Hours after Xi departed, the China Securities Regulatory Commission banned major shareholders, corporate executives and directors from selling stakes in listed companies -- the latest in an unprecedented series of policy measures meant to halt the market’s slide.

On Thursday, another 194 companies suspended stock trading, leaving a total of 1,439 shares halted, about 50 percent of the companies listed in Shanghai and Shenzhen.

In its first statement on the stock plunge, the People’s Bank of China said Wednesday that it would provide “ample liquidity” to the state-backed China Securities Finance Corp. to support the stock market.

Zhou’s absence from China doesn’t preclude more central bank action to prime the market. The People’s Bank of China cut the amount of cash lenders must set aside by 1 percentage point on April 19, just after Zhou spoke at an International Monetary Fund meeting in Washington.

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