Developments in China and impact on portfolios

The Franklin Templeton Emerging Markets Equity team offers some highlights of China’s 20th Congress and investment considerations.

Key takeaways

  • China’s President Xi Jinping kicked off his third leadership term, introducing a refreshed Politburo Standing Committee with his loyalists.
  • Continuity in policy direction is likely to remain, with quality growth a priority—promotion of common prosperity, housing for all, gradual decarbonization and improvement of public systems.
  • Other policy initiatives cover China’s opening-up and international cooperation, national security (including self-sufficiency in key areas e.g., food, energy, technology) and reunification.
  • There was no emphasis on China’s zero-COVID policy, with no further clarity on reopening.
  • The party reaffirmed the role of the private sector, which remains critical to the economy alongside state-owned businesses.

Following the 20th National Congress of the Chinese Communist Party in October, a selloff in Chinese equities ensued due to concerns that economic growth may take a backseat to common prosperity and security as top priority, continued macro challenges such as China’s zero-COVID policy and resolution of real estate challenges, and geopolitical considerations.

However, observers have noted that political unity can help achieve better policy coordination and implementation. This may translate into faster execution of policy objectives. In addition, China’s implied long-term growth objective remains intact (with reference to becoming a “moderately prosperous” society, implying a reasonable growth rate to achieve inclusive and quality growth rather than focusing on gross domestic product growth targets).

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