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China, After a Delay, Unexpectedly Releases Economic Data China Released Seemingly Rosy Economic Data. Shares Fell Anyway.
(about 7 hours later)
China’s economy began to show faint signs of recovery in the last three months after stalling earlier this year, according to data released on Monday after a six-day delay during the Communist Party’s national congress. As China’s top leader, Xi Jinping, moved to extend his rule, he pushed out rivals who had been perceived as pro-business. He praised Marxism over markets. He placed security ahead of the economy.
The country’s economic output was 3.9 percent higher from July through September than during the same months last year. The modest rebound in activity exceeded the expectations of Western economists, who had estimated growth of a little over 3 percent. Now, with his grip on China tighter than it has ever been, Mr. Xi begins a groundbreaking third term this week poised to expand the influence of the Communist Party over the economy.
The composition of the growth, however, was not entirely what China’s leaders have sought. While consumer spending began to recover following the Shanghai Covid lockdown in April and May, China remained heavily dependent on state-led, debt-fueled construction of road, bridges, rail lines and other infrastructure. Mr. Xi’s belief in the primacy of the party could shift the world’s second-largest economy back toward a more state-led model. Mr. Xi’s consolidation of power points to a new era in China in which national security and ideology would be a higher priority than maintaining robust growth. That could be bad news for an economy that has already been dragged down by official policies such as the stringent “zero Covid” strategy of lockdowns and mass testing.
The halting pace of China’s economic recovery reflects in part the ruling Communist Party’s efforts to expand its sway over the economy and society. Xi Jinping, China’s top leader, consolidated his power over the weekend by pushing out rivals. Among them was the current premier, Li Keqiang, who had called an emergency meeting of more than 100,000 officials in May to sound the alarm about the need to gin up economic growth. Financial markets are already signaling their unease over what Mr. Xi’s extended rule — and his agenda — portend for China. In Hong Kong, share prices plummeted more than 6 percent on Monday, reaching 13-year lows as traders dumped huge numbers of shares to limit their exposure to whatever Mr. Xi might do next.
In contrast, Mr. Xi, the party leader, has put a premium on social stability and national security, often with actions that have also had the effect of slowing economic growth and employment. In a speech at the opening of the party congress about a week ago, Mr. Xi mentioned security six times as often as he mentioned the economy. In mainland China, stock markets fell nearly 3 percent even though the Chinese government puts heavy pressure on institutional investors not to sell during politically sensitive moments. And China’s currency, the renminbi, dropped to a 14-year low against the dollar as companies and affluent families continued to send money out of the country in search of safety and higher interest rates.
“We have implemented the overall national security concept, safeguarded national sovereignty, security, and development interests with firm will and quality,” he said. The heavy selling in China was particularly striking given that the Chinese government announced stronger-than-expected data on Monday. It showed that the country’s economy grew 3.9 percent in the three months that ended in September, from the same period a year earlier.
On Monday, share prices fell more than 4 percent in early trading in Hong Kong and nearly 2 percent on stock exchanges in mainland China. Mr. Xi has pushed a vision of “common prosperity,” a vaguely defined campaign of redistributing wealth that has unnerved investors. Mr. Xi has put a premium on politics and security, even at the cost of slowing economic growth and employment. In a speech at the opening of the party congress on Oct. 16, Mr. Xi mentioned security six times as often as he mentioned the economy. Last week, as the congress was underway, the government unexpectedly delayed the normally routine release of quarterly economic data, without explanation.
Mr. Xi spoke during the congress of making sure that income accrues to those who labor to earn it — an implicit rebuke to those who earn their livelihoods through trading or investment. Then over the weekend, as part of a twice-a-decade leadership reshuffle, Mr. Xi moved many of his loyalists into the top ranks of the party. He pushed out longtime economic policymakers like Premier Li Keqiang, whose doctoral dissertation won China’s top award in economics in 1994, and Wang Yang, an architect of the free market economic boom in southeastern China.
Under Mr. Xi, regulators have clamped down on the tech sector, contributing to widespread layoffs among young employees. Dozens of the country’s private property developers have defaulted on debts after Beijing discouraged real estate speculation. Tycoons have been fleeing the country. Municipal lockdowns to stop outbreaks of Covid-19 have taken a heavy toll. “The new administration doesn’t look particularly business-friendly — there’s every indication that party loyalty trumps everything else,” said Richard Harris, the chief executive of Port Shelter Investment Management, a Hong Kong investment firm.
Yeling Tan, a political scientist at the University of Oregon, said that Mr. Xi seemed more preoccupied with stability than with growth. “Economic growth has been subsumed within a broader narrative of national strength and security,” she said. Under Mr. Xi, regulators have clamped down on the tech sector, contributing to widespread layoffs among young employees. Dozens of the country’s private property developers have defaulted on debts after Beijing discouraged real estate speculation. Tycoons have been fleeing the country. Lockdowns in cities and regions across the country to stop outbreaks of Covid-19 have taken a heavy toll on economic growth.
The release of the economic data came as a surprise after it was withheld without explanation last week. It is rare for any large economy to delay the release of such an important economic report. Some observers and investors had hoped that Beijing would use the party congress to emphatically reassure private businesses and entrepreneurs that they were still welcome. Instead, the dominant rhetoric emerging from the conclave pointed to more state regulation.
The better-than-expected data suggested that the government’s motive in delaying the release was to avoid having any news last week that might distract from the party congress. Economists said that the move had compromised international confidence in the reliability of China’s economic data. The nosedive in financial markets was particularly focused around the shares of Chinese internet companies, which have been a key target of Mr. Xi’s expansive campaign to strengthen the party’s control over the economy.
“Dark clouds of political suspicion will undermine official Chinese statistics for years to come,” said Stephen S. Roach, a Yale economist. “It is clear that before the party congress there had been a lot of wishful thinking in large swathes of the financial community that there would be some kind of clear signal of commitment to the traditional liberal economic reform, and that has now been exposed as a delusion,” said Arthur Kroeber, a founding partner and the head of research at Gavekal, a China-focused research firm.
The National Bureau of Statistics did not hold its usual quarterly news conference to discuss the country’s economic performance, which normally accompanies its data. Also, the statistical agency’s data release was not accompanied with the usual set of written remarks from an agency spokesman to present the government’s interpretation of the data. He added that few had expected Mr. Xi to move so many of his loyalists into the Politburo and particularly the Politburo Standing Committee, the apex of power in China.
China’s General of Administration of Customs also released on Monday morning its trade data for September, which had been delayed by 10 days. That data showed continued strength in exports and a sharp expansion of the trade surplus as imports were little changed. “I think there was a fair bit of money placed on the idea that there would be a more balanced Politburo and a Standing Committee that consisted of people who were not only direct acolytes of Xi,” Mr. Kroeber said.
Of particular concern is Mr. Xi’s signature “zero Covid” policy, which has stamped out numerous outbreaks but imposed major disruptions to daily life and the functioning of the economy.
Even though the headline figure for economic growth released on Monday showed China on a path of recovery, it still fell short of Beijing’s target of 5.5 percent for this year. The details also illustrated the continuing impact of lockdowns. Consumer spending, which recovered over the summer from a lockdown in Shanghai last spring, slowed sharply in September, as a jump in Covid cases prompted the authorities to confine people to their homes.
The lockdowns have particularly hurt small shops and eateries, which are a mainstay of urban employment. In Beijing, Wang Shixiong has run a store for more than 20 years selling incense and Buddhist figurines directly across the street from Beijing’s Lama Temple, a popular tourist destination. But his sales lately have been half of what they were before the pandemic.
During the recent Golden Week holiday in early October — normally a high point for tourism — his store was quiet. Neighborhood officials kept stopping in every other day to check that he had disinfected the premises, he said. Security was subsequently stepped up across Beijing for the party congress.
“Then you add the pandemic, and there are just many fewer people,” Mr. Wang said. “If there weren’t a pandemic, there would be so many people in front of our door.”
China’s move to release important economic data on Monday was as much of a surprise as its delay last week. Without explanation, the National Bureau of Statistics put out the figures without holding its usual quarterly news conference to discuss the country’s economic performance.
The better-than-expected data suggested that the government’s motive in delaying the release was to avoid having any news last week that might distract from the party congress, rather than out of concern that the data would look bad. Still, economists said that the move had compromised international confidence in the reliability of China’s economic data.
“Dark clouds of political suspicion will undermine official Chinese statistics for years to come,” said Stephen S. Roach, a former chairman of Morgan Stanley Asia who is now a senior economist at Yale’s Jackson School of Global Affairs. He described the economic growth information released on Monday as “not a credible report from a discredited statistical agency.”
Over the longer term, one question is how far Mr. Xi will push his vision of “common prosperity,” a vaguely defined, egalitarian campaign of redistributing wealth that has unnerved investors and could be a signal of higher taxes to come.
Mr. Xi spoke during the congress of making sure that income accrues to those who labor to earn it — an implicit rebuke to those who earn their livelihoods through trading or investment. “The return to Marxism is deeper than many people would have thought,” said Jean-Pierre Cabestan, a professor emeritus at Hong Kong Baptist University.
Keith Bradsher reported from Beijing and Alexandra Stevenson reported from Hong Kong. Vivian Wang contributed reporting from Beijing and Chang Che contributed reporting from Seoul. Li You contributed research.