China exchange-traded funds plunged on Monday as Chinese President Xi Jinping tightened his grip on power.
Last week’s 20th National Congress of the Chinese Communist Party ended with Xi, as expected, clinching a third-straight term—an outcome that was expected.
Investors, however, were stunned by the extent to which Xi was able to mold China’s top decision-making body to his liking. The Politburo Standing Committee, widely regarded as the most powerful group within the Communist Party, is now made up exclusively of Xi loyalists.
In addition to Xi, the committee has six other members, four of which are new.
With Xi and his loyalists effectively in charge, concerns are rising that they will implement his controversial policies with little or no resistance.
One worry is the continuation of the “Zero COVID” policy that has stunted China’s economic growth and led to recurring lockdowns across the country.
Another is China’s uncompromising stance toward Taiwan, which Xi has promised will be reunified with the mainland, whether it takes military force or not.
Xi’s crackdown on the country’s largest companies, and particularly, its tech companies, is pushing down stock prices. Since late 2020, the Chinese government, at the behest of Xi, has been curbing its tech giants.
Until November 2020, tech companies had free rein to grow as fast and as large as they could. Things changed, beginning when the government blocked Ant Group from going public in what would have been the biggest IPO of all time. It was reported that President Xi Jinping personally scuttled the IPO in retaliation for a speech that Ant Financial founder Jack Ma made that seemed to criticize the government’s regulation of the financial industry.
That set off a chain of further crackdowns on a range of companies from tutoring to ride-hailing to gaming.
China analysts say Xi might be trying to reorient the Chinese economy toward more government control, a reversal of a decades-long trend in which China’s economy became more market-oriented.
Xi has increasingly emphasized Community Party ideologies such as “common prosperity,” while attacking the “disorderly expansion of capital.”
Nothing In His Way
Having firmly cemented his grip at the helm of China’s government, Xi seemingly has nothing in his way.
Investors are nervous that those goals will come at the expense of the economy, geopolitical stability and corporations.
In a span of a year, China stocks—which are down more than 80% in many cases—have gone from growth to value. The question investors now have to answer is, are they a value trap?
Follow Sumit Roy on Twitter @sumitroy2