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China plays down hopes for ‘strong medicine’ at key policy meeting
Peng, an employee at a Chinese state media outlet in Beijing, is reeling after being forced to take her second pay cut in less than a year as the country’s economic weakness hits even its government-owned companies.
“I can barely live on this,” she complained. “The work keeps piling up, but the money keeps shrinking.”
Peng’s situation, which is reflected throughout the China as the economy struggles to recover from the housing crisis and the pandemic, it illustrates the challenges facing President Xi Jinping’s government as it prepares to hold one of the Communist Party’s most important five-yearly meetings this month.
In the past, the Chinese Communist Party has used the third plenary session of its central committee, its elite leadership body, to address the most important economic issues of the day. In 1978, Deng Xiaoping used the meeting to launch China’s “reform and opening up” initiative after the Mao Zedong era.
Some experts argue that similarly bold action is needed now to boost domestic demand and prevent the world’s second-largest economy from falling into a deflationary spiral. But at a recent World Economic Forum event known as “Summer Davos” in the northeastern coastal city of Dalian, Premier Li Qiang signaled that without shock therapy would be disclosed.
Following the pandemic, China’s Economy It was like a patient recovering from a serious illness, Li said. “According to Chinese medical theory, at this time, we cannot use strong medicine. We must adjust accurately and slowly nourish [the economy]allowing the body to gradually recover.”
China’s economy has been hit by weak consumer and investor confidence, making it difficult to return to stronger growth © Vincent Thian/AP
China’s growth was solid in the first quarter, expanding 5.3 percent compared to the previous year, driven by industrial and manufacturing production, although consumer spending remained uneven.
Analysts have been scrutinizing recent speeches by Xi and other leaders for signs of Beijing’s policy direction over the next five years or more that could be revealed at the conclave, which will be held from July 15 to 18.
Possible areas of focus include Xi’s “new quality productive forces,” party jargon that analysts believe refers to advanced technology, green energy industries and improved manufacturing, as well as tax and social welfare reforms, changes to China’s hukou household registration system and efforts to reinvigorate private sector confidence.
The central committee — which currently consists of 205 full members and 171 alternates appointed at the party’s 20th congress in October 2022 — typically convenes seven plenums over its five-year term. The third meeting has drawn particular international attention because of past pronouncements on economic policy.
“The base case is that this third plenum will not mark a fundamental departure from the course Xi has already charted,” Gavekal analysts Andrew Batson and Wei He said in a research note.
“Its official agenda is to study ‘advancing Chinese-style modernization,’ a term Xi uses to pursue his vision of national greatness in which technological self-sufficiency and national security trump economic growth.”
Xi has prioritized industrial production in cutting-edge sectors such as electric vehicles, batteries and semiconductors to revive China’s economy © Stringer/Reuters
New productive forces are one example. Xi this year linked his industrial production strategy, which prioritized investments in sectors such as electric vehicles, batteries, semiconductors and biotechnology, to the concept of total factor productivity, a measure of economic output not driven by increases in inputs such as capital and labor.
That raised hopes among economists for a more market-oriented approach to growth. But Gavekal argued there was no indication that the state would reduce its role in the economy. Beijing still wants to “direct resource allocation toward achieving policy goals of industrial upgrading and technological innovation,” Batson and Wei said.
Tax reform, however, is one area where there could be changes, analysts in Beijing said.
China’s central government accounts for only about 10 percent of total government spending, compared with a global average of about 20 percent. However, Beijing controls a disproportionate amount of revenue compared with local governments. This has contributed to a debt crisis in many local governmentswho have struggled to increase revenue amid the housing crisis.
“The main direction of the reform to be implemented is how to increase the percentage of central government spending in all the country’s spending,” said economists at a government-linked think tank.
Regarding pension reform, companies will be alert to any signs of delays in the retirement age, which is among the lowest in the world, being 60 years for men, 55 for women in administrative jobs and 50 for women in manual jobs.
As demographic decline sets in — China’s population shrank for the second year in a row last year — policymakers need to find ways to mitigate the growing fiscal burden of pension payments, experts warned.
Further relaxing the hukou household registration regime — which restricts people’s full access to public services outside their hometowns — could spur more urbanization and help the struggling housing market.
But some observers have argued that Xi is unlikely to completely dismantle the hukou, which prevents overcrowding in “first-tier” cities, especially Beijing and Shanghai, and gives the party control over population flows.
Some business leaders are hoping for incentives for the private sector, such as lifting foreign ownership limits in some sectors, to revive sentiments shaken by crackdowns in the real estate and e-commerce sectors.
Others are still seeking a decisive response to the housing crisis. The government has launched schemes to intervene directly in the market buying unsold inventory, but their measures have failed to boost confidence. The third plenary session could be a good forum for a “big bang” announcement in the housing market, some analysts have suggested.
“In a positive scenario… strong policies could be suggested or even introduced in the third plenum,” said Yifan Hu, chief investment officer at UBS Global Wealth Management.
But most observers admit that is unlikely, warning that the main focus will be on continuity as Beijing tries to transition from a debt-fuelled, high-growth economic model driven by real estate and infrastructure to one marked by investment in high-tech industries and the green transition.
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“We shouldn’t expect too much from the third plenum,” said a prominent economist at a government think tank.
The economist added that markets were already anticipating a muted meeting. Shenzhen and Shanghai stock indexes have both fallen 1.6 percent since Li Qiang’s comments in Dalian.
For Chinese citizens seeking relief from pay cuts and job losses, this is not good news. State media official Peng said austerity was evident at every level of her organization.
One of her bosses recently had his salary cut by 35 percent, which “left him unable to pay his monthly mortgage payments,” she said.
Notable events at the third plenum of China
1978
Considered a turning point in the history of the Chinese Communist Party, the 11th Third Plenum in 1978 established Deng Xiaoping as China’s top leader and ushered in the era of “reform and opening up” that ended Mao Zedong’s planned economy and led to rapid economic growth.
1993
Jiang Zemin, the late general secretary of the CCP, called for the establishment of a “socialist market economy” by the end of the 20th century and instituted reforms to encourage private enterprise and change the operations of state-owned enterprises.
2013
The first third of the plenum under President Xi Jinping affirmed the “decisive role” of the market in allocating resources and included measures to liberalize the banking system, encourage private investment in state-owned enterprises, abolish re-education through labor and ease the one-child policy.
2018
The most recent third plenum, held exceptionally early in the term, approved reforms to party and state institutions and cemented Xi’s status after the party announced a constitutional amendment to abolish presidential term limits, paving the way for Xi to rule for life.
The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above ₹260, one can buy this Reliance Group stock at the short term target of ₹295, keeping a stop loss of ₹240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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