China's equivalent of Congress concluded its annual meeting on Monday, completing a major leadership reshuffle with Li Qiang, the nation's freshly appointed premier, fielding questions in his new role for the first time.
China's No. 2 official and top civil servant said it would be "not easy" to hit the government's GDP growth target of "about 5.0%" for this year, even though that target is seen as a conservative goal. In his first public comments, Li went out of his way to stress the importance of the private sector in China's development. While the premier's position has been weakened as President Xi Jinping unified the leadership around himself, Li will be key in tempering the Maoist tendencies of his boss and pushing the modernization and diversification of China's economy.
Li, who was the Chinese Communist Party boss of Shanghai when China's largest city suffered through a punishing two-month Covid lockdown, did not address that episode while answering cherry-picked questions for which he had prepared. Instead, Li insisted that China's zero-Covid policy was "completely correct," buying the country time to develop and roll out vaccines.
The Dec. 7 abandonment of harsh anti-Covid measures led to a devastating and sudden two-month wave of Covid, during which an estimated 80% of the 1.4 billion population got infected. Li characterized this as intended, a "remarkable" victory to produce a "smooth transition" from one phase of the epidemic to another. "Practice has proved that my country's various strategies and measures for epidemic prevention and control are completely correct, and the effectiveness of prevention and control is huge," he insists.
There's no precise count of how many people died during that massive infection period. However, reporters tracked hearses lining up in long queues at crematoria and doctors said rural healthcare systems were buckling under the pressure of infection. China refused to import any vaccines for political reasons, leaving it with less-effective "old-fashioned" vaccines based on dead or denatured virus cells, which continue to provide less protection than next-gen RNA-based vaccines, particularly against newer strains of Covid. If the death rate was similar to other nations, it is likely more than 1 million Chinese died of Covid-linked causes.
There's concern that Li Qiang, who replaces Li Keqiang as premier, is first and foremost a Xi loyalist and devoted Communist Party member rather than a career civil servant like his predecessor. The new premier has held senior Communist Party positions in Shanghai, Jiangsu Province and Zhejiang Province but has never held a senior position with the central government, a first for a Chinese premier. He was Xi's chief of staff between 2004 and 2007. Li Qiang was, however, was in charge of Shanghai when Tesla (TSLA) opened its factory there.
The State Council, China's cabinet, is also newly installed. There were promotions to that top civil service body for several leading Communist Party officials, concentrating power under the party and Xi. However, China unexpectedly left central bank governor Yi Gang and finance minister Liu Kun in their positions even though they've hit 65, the age at which ministers normally retire, perhaps cautious of the lack of economic experience among the new appointees.
Xi, in a speech on Monday, spoke of the need to erect a "Great Wall of Steel" and the urgency for China to bolster its military and defend national security. Although Xi let up on his Maoist rhetoric when his zero-Covid policies disrupted China's economy so badly, he had previously spoken of the need to redistribute wealth, prevent the "disorderly expansion of capital" and for the private sector to serve the party and the public. He may now revisit some of those ideas if China's economy kicks back into gear, so it will be important to see whether the new premier does follow through on his pledge to support the private sector.
Chinese markets put any uncertainty from the collapse of Silicon Valley Bank (SIVB) behind them and moved higher. The mainland blue-chip CSI 300 Index finished 1.1% higher and the Hang Seng Index in Hong Kong, fresh off a 3.0% decline on Friday, moved up 2.0%. Stocks in Taiwan and South Korea, largely driven by tech exports, also advanced.
The collapse of the tech-focused bank has caused declines in the shares of Asian banks, but to a limited degree. The bank has branches in Hong Kong, Shanghai, Beijing and the "Chinese Silicon Valley," Shenzhen. Its only other Asian operations are in the Indian tech hub of Bangalore. Investors were reassured by promises on Sunday night from the U.S. Federal Reserve that depositors would be protected.
We're seeing the largest moves in Japan, in terms of Asian financial stocks. Mizuho Financial Group (T:8411 and (MFG) ) ended down 4.9%, Sumitomo Mitsui Financial Group (T:8316 and (SMFG) ) lost 4.2%, Mitsubishi UFJ Financial Group (T:8306 and (MUFG) ) finished down 3.5%, and Nomura Holdings (T:8604 and (NMR) ) shed 3.5%. Given the Fed's reassurances, it's not a given their Wall Street listings will match those declines.
Besides concern about any spillover effect, Japanese financial stocks are also selling off after recent gains. They've been on the rise since the Bank of Japan's surprise move to widen the yield band it allows on Japanese government bonds. But Friday's interest rate meeting concluded with no further change, the last policy board meeting overseen by outgoing Bank of Japan Governor Haruhiko Kuroda, as I explained on Friday. Traders hoped rather than expected there would be a policy change.
Financials dragged the wider Japanese market down, with the Topix index of all major Tokyo stocks off 1.5% by the end of trade. Singapore is the main other mover lower, with the Straits Times index down 1.3% just before the close.
Chinese property stocks performed poorly in the upward-moving market after Country Garden (HK:2007 and (CTRYY) ), the largest developer by sales, said it expects to post a loss of as much as US$1.1 billion for 2022 thanks to the moribund market. The zero-Covid disruption and widespread outbreak stopped would-be buyers from visiting showrooms and confidence in making big-ticket purchases has not yet returned.