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What does President Xi think?

Global Equities

BNP Paribas Asset Management
 

The crisis in the Chinese real estate market is not solely about the real estate company China Evergrande. The key to understanding China Evergrande’s fate and the consequences for the company’s customers, creditors and shareholders is to understand President Xi’s agenda.

For many years, there has been an implicit social contract between the Chinese people and the Communist Party, where the Communist Party ensured progress and high growth in return for the loyalty of the people. As China has grown, it has become necessary to renew the social contract as a result of difficulties in sustaining the high growth trajectory. Xi has therefore rewritten the premise with a lower economic growth outlook, but with a higher quality of growth (e.g. with a focus on the environment) and greater equality in society.

In other words, the Chinese Communist Party, led by President Xi, has expelled the Western-inspired capitalistic path. The new direction is “Common Prosperity Capitalism”, i.e. a more socialistic approach, where capitalism benefits all stakeholders. Maybe Xi took the decision seeing angry Americans storming Congress in early 2021. No matter what, the fact is, that China has changed direction since then.

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