s trouble brewing for Xi Jinping under the calm surface of Chinese politics? ; China: Economy on firmer footing

Highlights from the Weekly Table:

Asian political risk: ASEAN pulled off a success by getting Myanmar’s junta to sign onto a consensus statement on the Myanmar crisis. However, we doubt whether there will be more than a short pause to the violence in Myanmar: we do not see the junta making major concessions.

Asian economies

  • Korean and Taiwanese trade data affirm our view that the shape of global demand is broadening out beyond the sorts of goods that were greatly in demand during the pandemic such as electronics.
  • India is wilting as the pandemic turns into a tragedy. Given the limited options for policy support to offset the damage, the economic recovery will be set back for several months. Premier Modi’s popularity will be hurt but he has shown a capacity to overcome political adversity. Neither is India’s crisis likely to affect the global economy given its relatively small footprint.
  • Bank Indonesia has acknowledged the slower-than-desired pace of economic normalisation but its room for policy easing is clearly constrained by its concerns for the Rupiah.

Is trouble brewing for Xi Jinping under the calm surface of Chinese politics?

  • Much is happening in Chinese politics in the run-up to the 20th party congress in November 2022. Former Premier Wen’s essay indirectly criticizing President Xi Jinping is just the most prominent example of potential disaffection with Xi.
  • While Xi has crushed these recent expressions of dissent and is likely to continue firming his grip on power in the near term, his position is not so indomitable as it might seem.
  • Xi has built a power base but there are questions over how loyal his acolytes really are. He has made many enemies as well and has reversed the reforms which had helped China’s political system offset some of the downsides of authoritarianism. Any serious misjudgement in either the domestic sphere or in foreign policy would crystallise these weaknesses in Xi’s position.

China: Economy on firmer footing

  • There is considerable debate over the outlook for the Chinese economy given recent adverse news on housing market regulation and fears of policy tightening. The authorities have also ramped up antitrust probes into the practices of major tech companies such as Alibaba and Tencent, further impacting sentiment.
  • Our analysis suggests that these fears are likely overdone. We now expect full-year GDP growth to print 8.6%, up from 8.0% previously.
  • Two main factors underpin our revised forecasts: a bigger expected contribution from exports and industrial production followed by a less accentuated slowdown in the interest-rate sensitive sectors – more than offsetting persistent weakness in consumer spending. Moreover, the balance of risks to the outlook are in our view tilted to the upside, should private sector investment show signs of a turnaround by year-end.

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