China’s next big trade is nationalism

HONG KONG, Oct 17 (Reuters Breakingviews) – President Xi Jinping has just made clear that he has bigger worries than the flagging economy. He opened the twice-a-decade Communist Party Congress on Sunday with a speech more focussed on national security and stability than in the past. That means state-led, inward-looking policies like self-sufficiency and zero-Covid will trump economic growth.

Xi’s two-hour-long speech summarising the Party’s achievements and priorities will be painstakingly studied by 96 million Party cadres across the country and become the basis for all other policy documents over the next five years. Investors would do well to follow their lead. Compared to 2017, it is far more political: Xi took direct aim at power factions, urging more “self-struggle”. A new plan to regulate wealth accumulation will also keep up the pressure from his sweeping anti-corruption drive.

Xi spent twice as much time as five years ago on the importance of national security, a wide-ranging concept from ramping up public health responses, to securing energy, food, and critical technology supply chains, to preventing the kind of social upheaval that rocked the streets of Hong Kong in 2019. It’s thus little surprise that he lauded the glaring success of zero-Covid policies despite the economic toll, stressed the need to prioritise domestic markets, and doubled down on modernising the military.

Terms like “reform” and “market”, which had become symbols of China opening up since the 1990s, suffered a sharp drop in mentions in his address, per Goldman Sachs analysts. Xi did reiterate the importance of the private sector and letting the market be the decisive force, but as in the previous congress, that was undermined by pledges to ensure the state’s outsized role. That suggests there may be more heavy-handed state crackdowns like those in the past couple of years on the internet and private tutoring sectors.

A slower-growing China may still account for as much as 30% of aggregate global economic expansion next year. Much of that is likely to come from domestic players acting in the government’s favour. For example, under a mechanism that vows to pull the entire country’s resources to promote technological self-sufficiency, nearly 9,000 small- and medium-size industrial companies have been identified as highly specialised “little giants” and won preferential treatment. The trick for investors is balancing Beijing’s objectives, market risks and potential sanctions amid the worst U.S.-Sino ties in decades. They will need a new playbook.

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CONTEXT NEWS

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

Editing by Antony Currie and Thomas Shum

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