Chinese stocks plunge after Xi takes unprecedented third term, rattling global investors
The Party (meeting) is over… and Chinese companies are nursing a hangover. Yesterday Alibaba, Pinduoduo, JD.com, China Telecom, and NetEase lost $52B+ in market value, and Hong Kong’s Hang Seng index plunged to its lowest level since 2009. One reason: China’s Xi Jinping won an unprecedented third term as president and installed his loyal allies into positions of power. Here’s why that spooked markets:
- Privatization nation: Xi’s cracked down on public companies with greater regulation and strict zero-Covid policies. Now some analysts say China is “uninvestable.”
- Injured giant: This week China also reported worse-than-expected GDP growth. Yesterday Goldman Sachs’ China Index fell 20% to its lowest point in a year.
A(nother) final straw… Tensions between Washington and Beijing remain high. In recent months, Chinese companies like DiDi Chuxing have delisted from US exchanges amid pressure from both sides. The US is ramping up scrutiny of Chinese companies like TikTok parent ByteDance for national-security reasons. And this month President Biden limited exports of chips and tech to China (Samsung and TSMC got exemptions).
- Bad blood: Just yesterday, the US Justice Department charged two Chinese officials with attempting to obstruct an ongoing investigation of Chinese telecom behemoth Huawei.
China’s role on the world’s stage is shifting… but it still has a leading part. Its share of US consumer imports has fallen in recent years partly because of Xi’s strict policies. But China is still the US’s top trading partner, and trade between the two countries is actually growing in many sectors. As the second-largest economy, China is big enough to affect markets everywhere: the IMF recently cited its slowdown when it lowered its growth forecast for the coming year.