Xi Jinping’s Power Grab Spooks China Investors

The China markets tumbled Monday morning after President Xi Jinping consolidated his grip on power even further by stacking the party’s most powerful decision-making body with his key allies and getting a third term in office.

Hong Kong’s Hang Seng Index plunged 6% to 15,220 points in afternoon trading, the second-lowest level since the 2008 global financial crisis. Chinese tech giants Tencent and Meituan had tumbled as much as 10.2% and 13.8%, respectively. The billionaire moguls behind the companies—Tencent’s Ma Huateng and Meituan’s Wang Xing—each lost more than $1 billion of their wealth within the span of a couple hours, making them among the worst performers on the World’s Real-Time Billionaire list on Monday.

On Sunday, Xi revealed the lineup of the Politburo Standing Committee, China’s top governing body. The other six men on the committee are all seen as loyalists with close ties to Xi.

Analysts say investors are growing increasingly anxious over the new leadership’s continued regulatory pressure on private enterprises, as well as the country’s strict Covid-Zero policy which has shown no signs of letting up. In Xi’s opening speech delivered during the week-long congress, he praised China’s Covid prevention measures as a “people’s war” to fight the coronavirus and protect lives.

Those measures, coupled with an ongoing emphasis on areas such as security, regulating the housing market and promoting common prosperity, has disappointed investors who had been looking for signs of regulatory easing.

“The concern is that President Xi now has unfettered power to pass policies that are not friendly to the market,” says Justin Tang, Singapore-based head of Asian research at advisory group United First Partners.

Dickie Wong, executive director of Hong Kong-based Kingston Securities, also says the party congress has given investors little reason to cheer. He adds that there are also rising concerns about escalating tensions between China and the U.S.

In a thinly veiled criticism directed at Washington, Xi said in his opening remarks that China has stood up against unilateralism, protectionism and “bullying.” He also vowed to strengthen China’s self-reliance on critical technologies, just as the Biden Administration was issuing a sweeping set of measures aimed at curbing its access to advanced chip-making equipment.

The Chinese economy, in the meantime, has shown signs of recovery but its long-term growth outlook remains clouded. Gross domestic product (GDP) rose at a better-than-expected 3.9% in the third quarter from the same period a year ago, according to data released today, which had originally been scheduled to be published on October 18 but was delayed due to the party congress.

But with few signs pointing to a relaxing of the country’s strict Covid measures that Fitch Ratings says have “stifled consumption and exacerbated business uncertainty,” the country’s economic growth would likely slow to 2.8% this year, well below the leadership’s initial target of around 5.5%, according to the rating agency.

Xi has said that China would continue to place development as a top priority, and he says he wants the country to embark on a trajectory of high-quality growth as part of its national rejuvenation, a term that refers to achieving higher standards of living and possessing advanced technologies comparable with those in Western countries.