[Inside Chodong] What Sunak Has That Xi Lacks

Anxiety Over Xi Jinping’s Third Term and Crony Politics
Chinese-Related Stock Markets Plunge, Massive Market Cap Loss
Emphasis on Unity by UK’s Sunak and Italy’s Meloni
Financial Markets Respond with Stability and Support

Chinese President Xi Jinping [Photo by AP Yonhap News]

[Asia Economy Reporter Park Byung-hee] The flow of the global financial markets on the 24th (local time) was interesting. It could be said that dissatisfaction and anxiety about crony politics were expressed.

On that day, the Shanghai Composite Index in China plunged 2.02% compared to the previous trading day. The Hong Kong H-Share Index dropped 7.30%, and the Nasdaq Golden Dragon China Index in New York stock market plummeted by as much as 14.43%. The Nasdaq Golden Dragon China Index is composed of Chinese companies listed on the U.S. stock market, and on that day alone, $73.4 billion (approximately 103.8 trillion KRW) of market capitalization disappeared.

This was because the 20th National Congress of the Communist Party of China (Party Congress) concluded over the weekend by confirming the third term of Chinese President Xi Jinping. Including President Xi, the seven members of the Standing Committee who will lead China for the next five years were all filled with Xi’s close associates, known as ‘Xijiajun,’ increasing concerns about one-man dictatorship.

On the other hand, the UK financial market showed strength on the same day after confirming former Chancellor of the Exchequer Rishi Sunak as the new Prime Minister. The UK 10-year government bond yield plunged by 0.31 percentage points, and the London Stock Exchange FTSE 100 Index rose by 0.63%. After being confirmed as Prime Minister, Sunak emphasized party unity in his first speech and stated that he would form a cabinet with capable people regardless of their support for him. Unlike President Xi, he stressed that he would not insist on close associates.

Rishi Sunak, Prime Minister of the United Kingdom
Photo by EPA Yonhap News

On that day, Italy’s Milan Stock Exchange MIB Index also rose slightly by 0.2%. Italy’s 10-year government bond yield fell by 0.19 percentage points, showing a welcoming attitude toward Prime Minister Giorgia Meloni, who officially took office over the weekend.

Meloni is the first far-right party Prime Minister in Italy in 100 years, but she showed a willingness to listen to opposing views. She previously argued that Italy should leave the European Union (EU) like the UK, but now she has changed her opinion and says Italy is a definite member of the EU. In particular, she emphasizes that the EU must become more integrated to confront Russia, which caused the energy crisis in Europe.

Looking back, the reason for the failure of Sunak’s predecessor, Liz Truss, was a lack of communication. The UK Daily Mail pointed out that when the Truss cabinet was announced, all of Sunak’s rival faction members were excluded. Truss also insisted on crony politics. The decisive cause of Truss’s resignation, the tax cut plan, was also the result of not listening to opposing opinions that pointed out fiscal problems.

From Truss’s perspective, there might be some unfairness. In the case of corporate tax, in fact, the whole world has been competing to lower corporate taxes due to a prolonged low-growth phase. So much so that last year, the Organization for Economic Cooperation and Development (OECD) proposed stopping the tax-cut competition and introducing a minimum corporate tax rate. Moreover, Truss was not planning to lower corporate tax but rather to cancel a plan to raise it.

Also, the recent turmoil in the UK financial market mainly stemmed from pension funds’ investments in derivatives. Due to their nature, derivatives are highly likely to be associated with speculative forces. The UK also has the trauma of being severely hit by hedge fund magnate George Soros’s attack 30 years ago. Many media outlets pointed out the problems of pension funds’ derivative investments.

Truss, perhaps feeling unfair, did not apologize until the last moment, and UK media criticized this attitude. For Truss, who did not communicate until the end, only the stigma of being the shortest-serving Prime Minister in history remains.

This content was produced with the assistance of AI translation services.