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The Xi Jinping economy: What’s next for China?

Chinese President Xi Jinping is aiming to show the world’s second largest economy who’s boss.
The country’s top leaders are gathered in Beijing this week for the National Congress of the ruling Communist Party, an event that takes place just twice a decade and is the peak of China’s political calendar.
For Xi, it’s a chance to tighten his already strong grip on power as he prepares for a second five-year term. During his first five years, he made it clear that the Party’s interests take precedence over market forces — and many experts expect that to continue. Reported on CNN
“If there’s a clash, the market has to be subordinate,” said Yanmei Xie, a Beijing-based analyst at research firm Gavekal.

Xi’s first term was full of drama: a far-reaching anti-corruption campaign that swept up business leaders and top officials; a stunning stock market crash that wiped out many people’s savings; and sharp plunges in the Chinese currency that contributed to fears of a collapse of the country’s economic growth.

Despite the turmoil, the economy has managed to keep chugging along, expanding at a rate that many Western nations can only dream of. But experts say Xi’s government has failed to move quickly enough to deal with the bigger issues that threaten China’s long-term economic health, such as soaring debt and bloated state-run companies.

Can he do better over the next five years?

Heavy hand of the state

Xi has spent the past five years opening up some parts of the Chinese economy, but retaining the government’s firm grip elsewhere.

Aidan Yao, senior emerging Asia economist at AXA Investment Managers, points out the government has made China’s currency more market-based and now allows foreigners to invest in the local stock market.

 

The International Monetary Fund endorsed China’s yuan as a reserve currency two years ago — putting it in an elite club that includes the U.S. dollar and British pound.

But the heavy hand of the state has remained evident. Government agencies clumsily intervened when the stock market crashed in 2015 and triggered alarm in global markets by devaluing the yuan without warning.

Meanwhile, foreign companies frequently complain that Chinese authorities ensure preferential conditions for domestic firms.

Making China great again

Chinese companies’ global deal-making provides a clear example of the government’s willingness to intervene under Xi.

Last year, Chinese companies splurged a record $170 billion on overseas deals, following calls from political leaders to increase China’s clout in international markets.

But acquisitions have almost halved so far this year after Beijing cracked down on the massive amounts of money moving out of the country, which were putting huge pressure on the yuan. That threw a spanner in the works of high-profile deals by top companies like Dalian Wanda Group, a real estate and entertainment conglomerate.

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