China's Xi Enjoys Honeymoon With InvestorsBy
Confidence is back, at least when it comes to China. A survey of Bloomberg terminal subscribers around the world shows renewed optimism about China’s economy, following the shift to a new leadership, headed by 59-year-old party secretary Xi Jinping. The good news comes after recent encouraging signs in the Chinese economy, including strong growth in industrial profits, retail sales, and trade.
Seventy-two percent of investors, traders, and analysts polled say China’s economy will either improve or remain the same, up from September’s 38 percent. Fifty-three percent expect Xi’s policies to be good for business, up from 42 percent who said that about Xi’s predecessor, Hu Jintao. Twenty-one percent by contrast say China’s economy is deteriorating, significantly down from the 61 percent who believed that in September. The survey of 862 Bloomberg subscribers was carried out Nov. 27, just 12 days after Xi was anointed as China’s new top leader.
Hopes are high that princeling Xi, the son of a former vice premier who pushed economic liberalization some three decades ago, will jump-start stalled reforms, including further loosening of controls over the currency, stricter monitoring of official graft to help address a growing income gap, and encouragement of a more market-based lending system that supports private enterprises.
“Xi’s personable style and track record in private-sector-friendly provinces [including Fujian, Zhejiang, and Shanghai] have led to many hopes that he will bring fresh momentum to economic and political reform,” said Beijing-based consultancy GK Dragonomics in a Nov. 19 note. “Public discussion of economic and financial reform has picked up after the close of the 18th Party Congress” on Nov. 14, which saw a once-in-a-decade shift in leadership, GK Dragonomics said in a later note.
Xi’s No. 2, 57-year-old Li Keqiang, said China must speed up economic reform, including by faster urbanization, in an article in the Party’s official People’s Daily newspaper on Nov. 21. Li, an English speaker with a law degree and doctorate in economics from top academy Peking University, is expected to be named premier, with responsibility for running the economy, at China’s National People’s Congress in March of next year. At that time Xi will almost certainly become president.
The survey showed investors see China as the country providing the second-best business opportunity worldwide over the next year, behind the U.S. but ahead of other countries such as Brazil, Russia, and India. The European Union and Japan were viewed as providing the worst opportunities. Fifty-three percent of those polled say they are optimistic about the investment climate under Xi, vs. 60 percent who say that about Germany’s Angela Merkel and 52 percent for Barack Obama. (The lowest rating goes to Prime Minister Yoshiko Noda of Japan, with only 21 percent expressing confidence about his policies.)
To be sure, the era of double-digit growth in China seems to be ending just as significant new challenges appear. China is facing a rapidly aging population, in part because of its one-child policy of the past 30 years. Its labor force will peak next year at 1 billion, then it will shrink, adding huge new pressures to China’s already stressed pension system. Wage inflation, running at 20 percent a year, is proving particularly painful for lower-cost exporting industries, including textiles and toys. Corporate debt has soared after several years of investment-driven growth and looks set to reach 122 percent of GDP this year, estimates GK Dragonomics.
And the early gains from throwing open what was then a command and control economy, starting more than three decades ago, are starting to fade. The economic benefit resulting from “China’s insertion into the global economy [including following its entry into the World Trade Organization in 2001] is not over but it is slowing down at the moment,” says Louis Kuijs, chief China economist at Royal Bank of Scotland in Hong Kong. “The enormous efficiency gains and economies of scale that many factories and industries have seen are also coming down. So we will see growth moderating into the future.”
“The economic and political challenges that the new leaders face are different and also harder to manage than those which confronted their predecessors 10 years ago,” added Moody’s Investors Service in a Nov. 21 note. “For the first time since China embarked on fundamental reforms to open its economy in the late 1970s, its leadership will likely face an era of single-digit growth against the backdrop of weak external demand, a maturing domestic economy, and changing demographics.”