The next big trade for China is nationalism

HONG KONG, Oct 17 (Reuters) – President Xi Jinping has just made clear that his concerns are greater than those of a faltering economy. The twice-a-decade Communist Party congress opened on Sunday with a speech focusing more on national security and stability than in the past. This means that state-led and inward-looking policies such as self-sufficiency and the non-proliferation of Covid will outpace economic growth.

Xi’s two-hour speech summarizing the Party’s achievements and priorities will be carefully studied by 96 million Party cadres across the country and will become the basis for all other policy documents over the next five years. It is better for investors to follow suit. Compared to 2017, it was more political: Xi directly targeted the power factions, urging more “self-struggle”. A new scheme to regulate the accumulation of wealth will also keep pressure from his sweeping anti-corruption campaign.

Xi has spent twice as much time as five years ago talking about the importance of national security, a broad concept from ramping up public health responses, to securing energy, food, and biotech supply chains, to preventing the kind of social upheaval that has rocked. The streets of Hong Kong in 2019. It is therefore no surprise that he praised the resounding success of zero-Covid policies despite the economic losses, and stressed the need to prioritize local markets, and redouble efforts to modernize the military.

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Terms like “reform” and “market,” which have become a symbol of China’s opening up since the 1990s, have suffered a sharp decline in references in his rhetoric, according to Goldman Sachs analysts. Xi emphasized the importance of the private sector and allowing the market to be the decisive force, but as at the previous conference, this was undermined by pledges to ensure the state’s outsized role. This suggests that there may be more drastic measures by the state such as those in the past two years on the internet and private tutoring sectors.

Slower-growing China may still account for as much as 30% of the total global economic expansion next year. Much of that is likely to come from domestic players acting for the government. For example, under a mechanism that undertakes to withdraw the resources of the entire country to promote technological self-sufficiency, nearly 9,000 small and medium-sized industrial enterprises have been identified as highly specialized “small giants” and received preferential treatment. The trick for investors is to balance Beijing’s goals with market risks and potential sanctions amid the worst US-China relationship in decades. They will need a new playbook.

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On October 16, President Xi Jinping delivered a two-hour speech on the opening day of the 20th National Congress of the Communist Party of China.

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Editing by Anthony Corrie and Thomas Shum

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed under the Trust Principles to impartiality, independence, and freedom from bias.

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