Hang Seng Index Plunges Over 1,000 Points on the First Trading Day After CCP’s Congress; Chinese Stocks Collapse

An electronic display board in Central, Hong Kong on Oct. 24, 2022. Bill Cox/The Epoch Times

On Monday, Oct. 24, Hong Kong and China stocks dropped, reversing the upward trend of U.S. stocks on Friday, Oct 21 and Asia Pacific stocks on Oct 24, in strong contrast to the performance of the global market. The Hang Seng Index plunged by more than 1,000 points, and the Shenzhen Composite Index and Shanghai Composite Index fell by more than two percent. While Australian and South Korean stocks closed higher by more than one percent, Taiwan stocks’ increase narrowed to 0.3 percent, as the market is worried that the tension between Taiwan and China will be further heightened after the CCP’s 20th Congress. India also traded up by almost one percent.

The Hang Seng Index (HSI) opened 316 points lower today, rallied about 100 points, and then started to fall sharply and kept on falling, hitting a new 13.5-year low. The Offshore Chinese Yuan/CNH also fell below 7.3, a record low. The HSI closed at 15,180 points, down 1,030 points or 6.4 percent, the worst single-day performance since the financial crisis in 2008, with turnover surging to 161.8 billion. In addition, the China Enterprises Index plunged 7.3 percent, and the Tech Index fell 9.7 percent.

Alibaba and Tencent Down Double Digits

Only six blue chips recorded gains, most of which are not directly related to China’s local economy. For example, CK Infrastructure (01038) rose 4.1 percent, Techtronic Industries (00669) rose 2.3 percent, and HSBC Holdings (00005) rose 1.3 percent.

Chinese stocks collapsed across the board, with ATM stocks leading the charge. Tencent (00700) plunged 11.4 percent to close at HK$206.2, Alibaba (09988) fell 11.4 percent to HK$61.65, and Meituan (03690) plunged 14.8 percent to HK$120.6.

Chinese real estate, insurance, drugs, food and beverage, and coal sectors all fell, such as Longfor (00960) fell 15.1 percent, Ali Health (00241) plunged 14.9 percent, PingAn (02318) dropped 11.0 percent, Xiabuxiabu (00520) fell 10.3 percent.

The Australian dollar also weakened significantly today, depreciating about 1.5 percent, as the currency has a degree of correlation with China’s real estate and infrastructure, and this relationship stems from Australia’s annual export of large amounts of iron ore to the mainland. According to data released today, China’s imports rose only 0.3 percent year-over-year in September, lower than the expected one percent, while the average home price in the 70 largest cities fell 1.5 percent year-over-year in the same month, a further weakness from the 1.3 percent drop in August.

First Trading Day After the 20th Party Congress

In the market, there is no major news on the fundamentals that can trigger such a plunge in the Hang Seng Index, except for JP Morgan’s statement that the European Central Bank will raise interest rates by 0.75 percent and that companies continue to be in low growth, so there may not be any nice surprises coming in from the results’ season; and China Overseas (00688) has weak results. It is mostly interpreted that investors are worried that the direction of economic development will be more uncertain after the 20th CCP Congress.

First of all, investors worried that as the “Zero-Covid policy” continues, domestic demand stocks are all bleeding to death, and the“ State (enterprise) in, Private (enterprise) out” route remains. There is also a new element of political risk, as overseas investors generally consider “political stability” as their primary investment criteria. What happened to former Chinese leader Hu Jintao, who was escorted out of the Congress by two men before everyone’s eyes shocked the foreign media as well as people in China. According to today’s trading, foreign investors withdrew 17.9 billion yuan from A-shares in panic, setting a record for single-day net outflow since the opening of the Shanghai-Shenzhen-Hong Kong Stock Connect, including 4.367 billion yuan from Guizhou Maotai (Shanghai: 600519) and 590 million yuan from Wu Liangye (Shenzhen: 000858).

Hong Kong financial expert Eddy Choi pointed out that the CCP’s disharmony has become apparent. In addition to the “Hu Jintao incident,” Li Qiang, the Party Secretary of Shanghai, who angered the people of Shanghai during the disastrous two-month city lockdown this year, has become the number two figure in the CCP. How Shanghai businesses and people view the future relationship between Beijing and Shanghai will likely shape the capital market. In addition, many red capitalists based in Hong Kong and opposed to Xi may stage a “Desperate Escape.”

Planned Economy Is Going Backwards

China expert Ji Da said the current term could be described as a major change of personnel, with around 100 people being changed, and it can be said that Xi Jinping has subverted the hidden rules of power succession in the CCP, “he does not have legitimacy, and it is not a system of traditional father-son succession; this means that the conflicts within the Party will be unprecedentedly acute, as there will be resistance, and the whole society will be in a huge crisis.

Ji believes that Xi Jinping is moving backward economically to a planned economy and that the leek-cutting (ripping off the poor repeatedly) has offended his fellow capitalists, such as Jack Ma, who represents the interests of a group of bureaucratic capitalists. “The government is now in the midst of a great crisis, and Xi wants to take away all the power in an airtight way, for example, through the Zero-Covid policy.” Ji said that with just one small crack, Chinese society would be like the movie ”Let the Bullets Fly,” and then there will be full-scale social unrest.

Li Qiang Is Loyal but Lacks Experience

Li Keqiang, the retiring Chinese Premier, sometimes acts as a counterweight to Xi Jinping’s economic policies. It is widely believed that Li Qiang will succeed Li Keqiang as premier in March 2023. But he has never served as vice premier, which has been a prerequisite for premiership for decades, and he also lacks the experience of leading a poor province, a prerequisite for a senior position in the party.

If Xi were to put his former chief secretary in charge of the State Council, responsible for coordinating all government departments, including the central bank, it would further weaken the boundaries between the Party and the state, raising questions about the direction of China’s economic development.

In the early 2000s, Li Qiang served as Xi Jinping’s chief secretary in Zhejiang Province and became governor of the province the following year after Xi took power in 2012. Vice Premier Liu He personally supported Li Qiang in 2015 to build “small towns with special characteristics,” that is, small cities with pleasant climates and beautiful environments. While such models have proliferated across the country, many have become unfinished ghost towns, leading the CCP to authorize a curtailment of such projects in 2021.

Li Keqiang Had Difficulty in Recent Years

From another point of view, it has been very difficult for Li Keqiang to play his role as the premier. Looking back at the past 10 years of Li Keqiang’s premiership, he initiated two rescue operations in response to the economic conditions at the time, but they were unsuccessful in the end.

On May 28, 2020, on the closing day of “the Two Sessions (National People’s Congress & CPPCC National Committee annual sessions),” Li Keqiang revealed at a press conference that 600 million people in China earned only about 1,000 yuan a month, while Xi Jinping had only just before said that China would achieve total poverty eradication among the rural poor by 2020.

Earlier that year, during his visit to Yantai in Shandong Province, Li Keqiang highly praised the ground-stall economy for creating jobs and being “realistic” and ”the vitality of China.” Immediately, the ground-stall economy became a buzzword on the Internet. The ground-stall economy is a plan to get lower-income households into the mass market.

However, on June 6 of the same year, the Beijing Daily published a strongly-worded commentary saying that “the ground-stall economy is not suitable for Beijing.” On the other hand, the CCTV News commented that the ground-stall economy is not a panacea for all diseases, saying that “different cities have different positioning and different stages of development, and once they are out of touch with reality, they will ‘erode’ the hard-earned gains of governance if they rise up in a rush.”

During the same period, CCTV commented that it is not appropriate for China’s first-tier cities to implement a “ground-stall economy.”

On May 25, 2020, Li Keqiang urgently convened a meeting of officials from 2,844 districts and counties across the country. In the “nationwide teleconference to stabilize the economy,” with over 100,000 people attending, he urged all localities to urgently introduce local policies to stabilize the economy. The front page of the People’s Daily that morning reported Xi Jinping’s economic outlook, “China’s economic development will definitely have a brighter future,” in which the article sang the praises of China’s major achievements in dealing with the Ukraine crisis and the “Zero-Covid” policy under the leadership of Xi, which is leading China towards rejuvenation. Some analysts believed that the meeting revealed that Xi and Li have divergent views on epidemic prevention and control policies and economic issues.

According to Ji, the CCP’s premier has lost his function under the extreme rule of the regime, and the real reason the Market lost its confidence is the newly selected “purified” Politburo, which is facing an imminent internal conflict and China’s economic crisis.