China Planning 'Major' Reforms Ahead of Key Political Meeting

Chinese President Xi Jinping arrives for a ceremony in Beijing marking the 70th anniversary of the Five Principles of Peaceful Coexistence /AFP
Chinese President Xi Jinping arrives for a ceremony in Beijing marking the 70th anniversary of the Five Principles of Peaceful Coexistence /AFP
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China Planning 'Major' Reforms Ahead of Key Political Meeting

Chinese President Xi Jinping arrives for a ceremony in Beijing marking the 70th anniversary of the Five Principles of Peaceful Coexistence /AFP
Chinese President Xi Jinping arrives for a ceremony in Beijing marking the 70th anniversary of the Five Principles of Peaceful Coexistence /AFP

Chinese President Xi Jinping said Friday the ruling Communist Party was planning and implementing "major" reforms, ahead of a closely watched political conclave that is expected to put economic recovery high on the agenda.

Chinese policymakers have struggled to reignite growth since the end of strict Covid-19 pandemic health curbs in late 2022.

The world's second-largest economy is beset by a debt crisis in the property sector, persistently low consumption and high youth unemployment, according to Reuters.

Xi said in a speech on Friday policymakers "are planning and implementing major measures to further deepen reform in a comprehensive manner".

"We will... form a more market-oriented, legal and international business environment," he said.

"China's door will only open wider and wider, and will never be closed."

Xi has touted the promise of significant reform several times this year and the government has already enacted measures in key sectors such as real estate to try to address critical issues.

It was announced on Thursday that the delayed Third Plenum -- a meeting historically watched for signals on economic policy direction -- will take place in Beijing in mid-July.

The key meeting of top officials, originally expected last autumn, is highly anticipated in the hopes it might resolve the uncertainty that has weighed on China's economy.

The People's Bank of China (PBOC), the country's central bank, pledged later on Friday to "promote the implementation of the financial policies and measures already issued, and push for the stable and healthy development of the real estate market".

"(We will)... promote the accelerated construction of a new model for real estate development," the PBOC said in a statement.

Xi's address at Beijing's opulent Great Hall of the People, delivered in front of a high-profile international audience, marked the 70th anniversary of some of China's foundational diplomatic tenets.

The Five Principles of Peaceful Coexistence include mutual respect for territorial integrity, mutual non-aggression, mutual non-interference in internal affairs, equality and cooperation for mutual benefit, and peaceful coexistence.

Xi hailed China as a force for global peace, saying in his speech Beijing would continue to play "constructive roles" in international conflicts such as Gaza and Ukraine.

China has been criticized by Ukraine's allies for failing to condemn Russia's 2022 invasion and accused of favouring Moscow. Beijing insists it is a neutral party.

In the Middle East, China has advocated for decades for a two-state solution to the Israel-Palestinian conflict.

Xi called for greater cooperation between China and developing countries in his speech.

"Engaging in small yard, high-wall decoupling practices is to move against the tide of history," Xi said.

"It will only harm the common interests of the international community."



Euro Falls as Markets Brace for French Post-election Gridlock

A participant holds a French flag during an election night rally following the first results of the second round of France's legislative election at Place de la Republique in Paris on July 7, 2024. (AFP)
A participant holds a French flag during an election night rally following the first results of the second round of France's legislative election at Place de la Republique in Paris on July 7, 2024. (AFP)
TT

Euro Falls as Markets Brace for French Post-election Gridlock

A participant holds a French flag during an election night rally following the first results of the second round of France's legislative election at Place de la Republique in Paris on July 7, 2024. (AFP)
A participant holds a French flag during an election night rally following the first results of the second round of France's legislative election at Place de la Republique in Paris on July 7, 2024. (AFP)

The euro slipped on Sunday after projections from France's election pointed to a hung parliament and an unexpectedly strong showing for the left-wing New Popular Front, casting fresh uncertainty over markets and setting the stage for further volatility ahead.

Analysts said markets would likely be relieved that Marine Le Pen’s far-right National Rally (RN) was forecast to come third after last week's first-round victory.

Yet investors also have concerns that the French left’s plans could unwind many of President Emmanuel Macron’s pro-market reforms. And they believe political gridlock could end attempts to rein in France's debt, which stood at 110.6% of gross domestic product (GDP) in 2023.

The euro fell 0.2% to $1.081 as the week’s trading got underway. It had climbed last week as opinion polls suggested a hung parliament was likely, assuaging fears of a far-right victory, after dropping sharply - along with stocks and bonds - when Macron called the elections in early June.

"It looks like the anti-far right parties really got a lot of support," said Simon Harvey, head of FX analysis at Monex Europe.

"But fundamentally from a market perspective, there’s no difference in terms of the outcome. There’s really going to be a vacuum when it comes to France’s legislative ability."

Harvey added: "The bond market is going to be the real place to look at. There might be a bit of a gap lower in French bonds (prices)."

Trading in French bonds and stocks will begin on Monday morning in Europe.

The leftist alliance, which gathers the hard left, the Socialists and Greens, was forecast to win between 172 and 215 seats out of 577, according to pollsters' projections based on early results from a sample of polling stations.

Macron’s centrist alliance was projected to win 150-180 seats, with the RN seen getting 115 to 155 seats.

Analysts said a period of volatility and uncertainty was expected to continue as investors now assess what form the parliament will take, and how many, if any, of its policies the leftist alliance will be able to implement.

The New Popular Front alliance says its first moves would include a 10% civil servant pay hike, providing free school lunches, supplies and transport while raising housing subsidies by 10%.

"The economic program of the left is in many ways much more problematic than that of the right, and while the left will not be able to govern on their own, the outlook for French public finances deteriorates further with these results," said Nordea chief market analyst Jan von Gerich.

JITTERY MARKETS

Markets tumbled after Macron gambled in June by calling a parliamentary election following a trouncing at the hands of the RN in European Parliament elections - as investors worried an RN victory could install a prime minister intent on a high-spending, France-first agenda that would exacerbate a large debt pile and shake relations with Europe.

The risk premium investors demand to hold the country's debt soared to its highest level since the euro zone crisis in 2012. French stocks, led by banks, dropped as investors worried about their holdings of government debt, new regulation and economic uncertainty in the euro area's second biggest economy.

Yet equities, bonds and the euro all recovered somewhat last week as polls showed a hung parliament was the most likely outcome as the left wing and centrist parties struck deals to give anti-RN candidates a better chance.

The exact make-up of the next parliament remains uncertain, as does the next prime minister. Gabriel Attal said he would hand his resignation to Macron on Monday.

"It’s going to be very hard to actually go ahead and pass any policy and bring about any progressive reforms because each party’s vote is split and no one has an absolute majority," said Aneeka Gupta, director of macroeconomic research at WisdomTree.

Yet she added: "I think the markets will be happy we’re avoiding this extreme situation with the far right."