Chinese stocks tumbled by the most since 2008 in Hong Kong and the yuan hit a 14-year-low after Sunday’s confirmation that Xi’s policies of stronger state control over the economy and markets will continue unchallenged for years.

Unlike in places like the US or UK -- where dramatic market reactions can force policy pivots or even overthrow entire governments -- it’s becoming apparent that investors are only an afterthought for Xi. That narrative was reinforced by Beijing’s move to delay the release of a raft of economic data without explanation, and risks further alienating money managers who are already leery of Chinese assets.

Investors have to decide if Xi’s policy objectives -- such as common prosperity and dual circulation -- are palatable, according to Hao Hong, chief economist at Grow Investment Group. “One has to examine whether these new sets of values align with your own” investment goals in the years ahead, he told Bloomberg TV on Monday.

Monday’s market reaction -- especially offshore -- suggests international investors are becoming increasingly leery of Xi, who has implemented tough curbs on one-time market favorites from Alibaba Group Holding Ltd. to education firms. With a new leadership team packed with his allies, analysts also expect little dissent against Xi’s Covid Zero strategy.

Eoin Treacy's view

The ejection of Hu Jintao from the Party Congress over the weekend has been much discussed. The headline is that he was experiencing health issues. That’s reasonable from an octogenarian. However, there is an eerie historical comparison.

Xi Jinping’s father was ejected from the Party Congress by Deng several decades ago, but within Xi’s personal memory. That also marked Deng’s assumption of significant power.

The big question is when will China abandon its Covid-zero policy. I am increasingly of the option that it is less about containing contagion risk from the virus and more about managing the compression of property prices.

How do you correct massive over investment/speculation in the property market, which consumes upwards of 20-30% of GDP and avoid existential social discontent?

You could cut off leverage, confine the population to their homes and tightly control any form of social forum. That appears to be what is underway and deleveraging the property sector is central to the long-term aim of the Party to ensure is continuity of power.

The Hang Seng China Enterprises Index (H-shares) Index is accelerating lower and testing the 2008 low today. A clear upward dynamic will be required to check momentum beyond a pause.

The biggest potential takeaway if this is the correct conclusion is we should expect a deflationary shock next year as Chinese growth goes negative.