China’s economic growth outlook has plummeted due to the war in Ukraine, greed and uncertainty about Xi’s plans-Reuters

At an emergency meeting last Wednesday, Chinese business leader Liu He calmed the market by promising support and attention to implementing policies that surprised investors. However, optimism about the pandemic performance of Chinese stocks, which until recently has attracted foreign capital, has been reversed, leaving questions about whether China can achieve its high goals.

Increasing pressure on the Chinese economy has also led to environmental sustainability, the fight against inequality, and the development of indigenous innovations.

The causes of economic uncertainty include the uncertain strength of Xi’s regulatory crackdown, domestic factors such as the worst coronavirus outbreak since 2020, and external shocks such as the possibility of a break with Western countries. Both are included. In the already severe turmoil of the world market after President Vladimir Putin’s invasion of Ukraine, there was a threat of sanctions against China when providing economic or military assistance to Russia.

“Basic economics is at a very important crossroads,” said Zhiguo He, a professor of finance at the University of Chicago, about the recent market turmoil. “A lot of bad economic news has piled up over the last six months. »»

In China, much of the unpredictability is due to Xi pushing for radical reforms in the education, real estate, energy and health sectors as Xi breaks precedent and prepares to embark broadly. It comes from investors trying to determine how far they will go. Expected third term. This fall.

For Xi, China’s most powerful leader in decades, the upcoming party convention is an important time to deploy high-ranking officials and stick to the political agenda to realize his vision of “national rejuvenation.” am.

Last year, as part of its reforms, the Chinese Communist Party cracked down on society as a whole, focusing on managing debt overhangs in bubble-prone sectors such as wealth redistribution, fighting competitive disloyalty, and real estate development. It showed a sharp shift to “common prosperity.” ..

However, this ideological slogan was not mentioned very often towards the end of the year, as economic planners emphasized stability over reform. This phrase was not included in the government’s work report on agenda-setting presented by Prime Minister Li Keqiang earlier this month. This suggests that maintaining economic activity is a top priority, at least this year.

In the struggling real estate sector, Chinese regulators have promised to stabilize prices and have announced a postponement of property tax trials that haven’t shaken things yet. Xi also cautioned against the idea of ​​switching from renewable energy to coal, saying, “We can’t throw away the tools that can feed us before new tools are available.”

Martin Chorsenpa, Senior Fellow at the Peterson Institute for International Economics, said a recent signal from Beijing is driving a new program that some investors fear will be implemented too rigorously. The authorities said it suggests that they still have some flexibility.

“There is a perception that this approach must adapt to the situation,” he said. Previously, there was a “stack effect” that regulators wanted to demonstrate its effectiveness, but in the end it created a compliance burden that seemed impossible and sometimes arbitrary. “If it’s not predictable, there’s no investment. »»

In addition to uncertainty about the direction and speed of Western reform, there is fear that China’s attempt to move away from Putin’s war against Ukraine may eventually collapse. Beijing claims to be neutral, but economists criticizing the aggression and not promising to maintain normal economic ties with its key strategic partner, Russia, are greater than including the United States. It warns that it may damage relations with trading partners. , Australia and Japan.

Such concerns include long-term issues in US-China trade and technology disputes, as well as the possibility that US Chinese stocks will be delisted after the review. Scrutiny from US Regulatory-Threats Accelerating US Sale Last Week. -Listed Chinese stocks.

Nancy Chien, a professor of economics at Kellogg School of Business, said the impact of the war in Ukraine on China’s relations with trading partners is unclear as to what the post-war world economy will look like. Said that it is one of the biggest causes of unpredictability. Management at Northwestern University.

“The question is, what does neutral mean? From the perspective of sanctions, we are in a truly unknown territory,” Qian said. “Is it enough if China does not participate in sanctions? If China does not participate in sanctions and continues to trade with Russia, will it undermine this neutrality or sanctions?» »

On Sunday, Chinese Ambassador to Russia Zhang Han Hui urged Russian Chinese companies to seize the opportunities posed by the current crisis and adjust their business models to close the “gap” in the Russian market. .. Many Chinese companies either do not want or cannot expand their business with Russia, partly because they are afraid of secondary sanctions.

According to Shan, the rise in global energy and food prices caused by the war is a major importer of commodities such as oil, gas and wheat unless Beijing cannot buy these products from Russia at prewar prices. Will join the economic headwinds of China. -Jin Wei, a researcher at Columbia Business School.

Coupled with the expected rise in US interest rates this year, the war shock could slow growth and increase uncertainty in other parts of the world, “leading to lower export demand in China.” This is a net negative for China’s growth. Wei said.

At the same time, Chinese authorities have shown that they are ready to do whatever it takes to ensure they reach their growth goals. Economic official Yang Guo-min told state media that achieving the goal is not as easy as it used to be.

“It’s a goal that can only be achieved with great effort, and with greater effort. If you want to reach that peach, you have to jump,” he said.

But, according to Colombian economist Wei, the leap may need to return to what he had worked in China in the past. China “must go back to a key element of past economic success over the next 40 years, which is to give the market a more decisive role … to revitalize entrepreneurial dynamism. ..

The question remains whether a return to such an old playbook can work in parallel with Xi’s efforts to curb the excess of Chinese capitalism and promote centralization.

The shepherd reported from Taipei, Taiwan. Lyric Li from Seoul and Vic Chiang from Taipei contributed to the report.