Chinese stocks plunged on Monday as Xi Jinping tightened his grip on power and official data signalled the economy would expand far less than expected amid a zero-Covid policy that has crippled growth.
The benchmark Shanghai Composite Index fell 2pc, while Hong Kong’s Hang Seng Index slumped more than 6pc to its lowest level since the depths of the Great Recession in 2009 after China’s president appointed loyalists to Communist Party’s top ranks.
It came as fresh figures showed the economy grew by 3.9pc in the third quarter compared with a year ago. While this was stronger than the 3.3pc predicted by analysts, it leaves the economy far short of a 5.5pc annual growth target.
Mr Xi’s choice of officials including Li Qiang, who oversaw a grinding two-month lockdown in Shanghai this year, suggests the world’s second largest economy will continue to be hampered by repeated lockdowns.
The International Monetary Fund (IMF) warned this month that the Chinese economy would expand by just 3.2pc this year amid strict Covid controls and an ongoing property crisis that has triggered a wave of debt defaults.
The IMF’s former managing director Christine Lagarde recently warned that the country would only expand by “around 2pc” this year, which would be the slowest growth since the 1970s.
Wei Yao, an economist at Societe Generale, predicts Chinese growth of around 3.5pc this year.
She said: “The growth outlook remains challenging amid the zero-Covid policy and the housing downturn.
“While a small recovery in the housing sector can be expected as policymakers are stepping up easing measures, an immediate exit from zero-Covid policy has become less likely.”
Mr Xi doubled down on the country’s zero tolerance approach to Covid during the twice-a-decade national congress that ended last weekend.
He said the Government had “protected people’s safety and health to the highest degree,” and “achieved significant positive results in coordinating epidemic prevention and control and social and economic development”.
Investors have turned cautious on China after Beijing’s crackdown on tech giants and stringent Covid controls.
Duncan Wrigley, chief China economist at Pantheon Macroeconomics, said: “The prospects of an immediate change in economic policy following the Congress are slim.
“Consumer confidence is weak because of the uncertain economic outlook. Any shift in zero-Covid policy will be mid-2023 at the earliest.”
