Pro-business policy signals have certainly come through loud and clear. Beijing has intensified its charm offensive as the new cabinet took office in March.
On the domestic front, the well-publicized appearance of a high-profile tech leader – and the swift announcement of his company’s business restructuring yesterday – effectively served as the ultimate stamp of reassurance that regulatory tightening has ended. This is accompanied by a new nationwide campaign that forbids “inaccurate accusations” of businesses and entrepreneurs, in essence encouraging more positive portrayals of the private sector to nurture confidence.
On the international front, Beijing has also dusted off its old playbook of opening up, substantiated with actions that announce the return of China – to business. This message was emphatically delivered by Premier Li Qiang at the China Development Forum, during which he met with several foreign C-suite executives.
According to the Premier, China will maintain its open-door policy despite geopolitical turbulence, and it remains committed to supporting globalization. Meanwhile, over the past few weeks China has shown clear intent to appear pragmatic and maintain constructive economic relations with rest of the world, in view of the brokered deal between Saudi Arabia and Iran and the visit from the former leader of Taiwan to the mainland.
The pro-business initiatives will likely be stronger than last year’s for two reasons. First, compared with last year, when the market was still casting doubt on policy continuity ahead of government reshuffle, they are coming from the new cabinet that is following through with its pledges during the NPC.
Second, businesses are coming back amid reopening, allowing entrepreneurs to re-engage with normal day-to-day operations and planning – in other words, in the absence of rolling lockdowns, pro-business messages are less likely to be deemed by companies as “cheap talk.”
Amid a measured easing and policy focus on reviving sentiment, China’s post-reopening recovery would naturally be more endogenous than exogenous.
Namely, in addition to the initial reopening boosts that featured some revenge spending (by some consumers), subsequent recovery would be more organic in the sense that the job market, appetite for consumption, and private investment would gradually normalize from a low starting point. The economy would converge to its post-pandemic potential path towards year end after some catch-up growth early on.
But because of the nature of this “organic” recovery, there tends to be volatility on a monthly basis. Indeed, hard data in January-February could be somewhat distorted by the release of pent-up demand, while our high-frequency trackers point to some moderation in sequential growth in early March before regaining some momentum.
The new cabinet is restoring confidence in the entrepreneurial private sector. We have repeatedly emphasized that 2023 is the first time in four years that economic, regulatory, and Covid policies have been aligned in a pro-growth, pro-business fashion. This would enable the private sector to rebuild confidence from a low starting point, amplifying the reopening boost beyond 1Q.
(Morgan Stanley research report)