China’s new government is being formed. So are its economic policies.

Everyone who cares about Chinese politics will gather in Beijing this weekend for the so-called two sessions, which is the joint annual meeting of the National People’s Congress and the Chinese People’s Political Consultative Conference. Two men who will not have children: Jack Ma and Fan Bao.

Ma, of course, is the founder of Alibaba Group Holdings (stock ticker: alibaba), the charismatic face of Chinese capitalism until some brazen remarks to state bankers forced him into exile two years ago. Bao, CEO of investment bank China Renaissance, was the country’s most famous rainmaker until he He disappeared two weeks ago. His company later revealed that he is “collaborating on investigation It is being carried out by some authorities.”

These two sessions are a big deal, and come after Xi Jinping reached a third term as Communist Party leader in October. They will enshrine a new government, and perhaps some guidelines for the next five years of economic policy. Investors who have lost out on Chinese stocks recently will be watching closely for signs of whether the second economy has really regained its charms. the

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Exchange-traded funds (MCHI) jumped by half between November and January, then lost 8% in February.

The absence of Ma and Bao is not encouraging. Xi’s political elite needs to repair relations with Chinese entrepreneurs because two other structural challenges — declining population and the deglobalization that drives foreign investment elsewhere — is largely out of their control, says Qian Wang, chief economist for the Asia-Pacific region at Xinhua. Vanguard. “The real determining factor is whether China can revive the private sector and local innovation,” she says.

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Scott Kennedy, senior adviser to the China economy at the Center for Strategic and International Studies, backs up Wang’s argument with the numbers: Fixed-asset investment by Chinese state-owned enterprises rose 10% last year. Domestic private investment has been steady. “The private sector votes in renminbi,” he concludes.

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The government sent more hostility to business in the run-up to the two sessions. The Communist Party’s Commission for Discipline Supervision, the Central Commission for Discipline Inspection, published a 3,500-word text urging “crackdown on hedonism and extravagance” among the “financial elites”. An employee known as the “butcher of the broker” was hired as the potential new regulator for the securities.

China’s presidents appear to lack solid ideas on another structural problem: weaning the country out of a runaway real estate bubble that has driven a quarter of the economy. A little credit easing could end up flats for prepaid buyers who are left with empty shells. But the sector is likely to remain weak, with knock-on effects on regional governments who have filled their coffers with land sales.

Robert Gilhooly, chief economist specializing in emerging markets research at Abrdn, says revenue in some areas has fallen by as much as 30%. “Leadership opens the way to the long-term housing challenge,” he says.

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China got rid of the “unattainable” label urged by some market players last year. Nor is it heading towards a new cultural revolution. Xi showed he can sometimes pleasantly surprise markets, by abruptly ending zero Covid last fall. The prime minister-designate, Li Qiang, is Xi’s aide, but he has also gained a pragmatic if not pro-business reputation in his five years as party boss in the commercial capital of Shanghai.

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“China is trying to find the sweet spot between government control and entrepreneurship,” says John Théophile Dreyer, a sinologist at the University of Miami. “But you don’t attract entrepreneurs by hiding them.”

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