(Bloomberg) — China’s yuan weakened and the country’s stocks tumbled to the lowest level since the depths of the 2008 global financial crisis in Hong Kong, a stark rebuke of President Xi Jinping’s move to stack his leadership ranks with loyalists.
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The offshore yuan weakened as much as 0.7% to 7.2782 per dollar Monday morning to approach a record low seen last week. The Hang Seng China Enterprises Index, a gauge of Chinese stocks in the city, fell more than 3% to the lowest since October 2008 even as economic growth data beat estimates. China’s benchmark CSI 300 Index also fell.
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The reshuffle announced after the Party congress highlighted Xi’s unquestioned grip over the ruling party, with loyalists set to take up key economic posts. While that may help accelerate key agendas, the addition of Covid Zero advocates to the Politburo Standing Committee diminishes the chance of any early loosening of Covid restrictions.
“The more centralized power becomes, the more the risk of overzealous policy implementation based on directives from the top,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics Ltd. “This happened in some of the lockdowns in the second quarter.”
Investors were disappointed during the congress last week as Xi defended his Covid Zero policy and fell short of offering stimulus to shore up the property market. The onshore yuan fell to the weakest level in 14 years and the CSI 300 slumped in all but one session last week.
Among the biggest losers in the Hang Seng Index Monday were Alibaba Group Holding Ltd., and Country Garden Services Holdings Co., each down more than 6%.
Meantime, the People’s Bank of China set the yuan fixing at 7.1230 per dollar, away from the recent pattern of near 7.11 per dollar.
Overall sentiment will remain cautious this week as China continues to see Covid outbreaks and investors await the Federal Reserve’s upcoming rate decision.
–With assistance from Lin Zhu and Tania Chen.
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