This Year’s Half-Hearted Policy Response a Harbinger for Things to Come

David Richter
OCT 12, 2022

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Executive Summary

China’s economy has come under tremendous pressure from multiple angles over the last couple of years. The pandemic has required strict adherence to Beijing’s Zero Covid Policy (ZCP), disrupting key supply chains and production, further delaying the recovery in consumption and the services sector. The property sector is undergoing its most dramatic correction since 2015 while the growth slowdown has jolted the labor market, pushing up the youth unemployment rate to more than 20%. Meanwhile, exports will likely slow in coming quarters as global growth comes under increasing pressure. To top it off, we have witnessed brewing social tension with reported bank runs and homebuyers’ threatened boycotts on mortgage payments for unfinished projects. None of this has been welcome news for Xi Jinping who is gearing up for the all-important 20th Party Congress kicking off this weekend, where he will almost certainly be granted a historic third term. In a “normal” year, labor market ills and property sector doldrums would be red flags for the Chinese Communist Party (CCP), quickly met with assertive measures and policy support to avert potential social unrest. Yet Beijing has been slow to roll out major stimulus for the economy or the property sector this year, confounding investors and disappointing markets on numerous occasions.