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Multiple issues cast clouds over China, the world's second biggest economy

STEVE INSKEEP, HOST:

Chinese leader Xi Jinping orchestrated exactly the outcome he intended at last week's Communist Party Congress. He was confirmed for a third term in office. Yet, as we've been reporting, investors were unimpressed, and Chinese stocks fell. NPR's John Ruwitch has been asking what unsettles people in business.

JOHN RUWITCH, BYLINE: For clues about why investor sentiment has soured in China, look no further than the central city of Wuhan, where the COVID-19 pandemic got its start nearly three years ago.

RONG REBALA: (Through interpreter) The streets are really empty today. The situation in Wuhan is getting worse.

RUWITCH: Rong Rebala runs a company that imports French wine and a wine bar. This week she's getting nervous, though. The city has been reporting a couple dozen COVID cases each day. And some parts of town are already sealed off thanks to the zero-COVID policy.

REBALA: (Through interpreter) The whole city may be locked down tomorrow or the day after. So I'm just doing the deliveries myself immediately, on the same day the orders come in.

RUWITCH: Lockdowns have been unrelenting in China, and they're taking a toll on businesses like Rebala's across the country. Her sales are already down 40- to 50% this year.

REBALA: (Through interpreter) My wine bar is closed already. I'm not allowed to open it. So if I can't do delivery, I'll have a big problem.

RUWITCH: Zero COVID is just one of many policies prompting investors and businesses to rethink their plans in China. There's also the crackdown on internet firms, a wobbly real estate market and a growing focus in policy pronouncements on equality that has put some of the country's wealthy on edge. All are seen as having one thing in common, according to Christopher Beddor, a political economy expert at the research firm Gavekal Dragonomics in Hong Kong. They're driven by Xi Jinping, now China's unrivaled leader.

CHRISTOPHER BEDDOR: Many of his core policies that he's promoted are just - they're clearly negative for markets. There's just no escaping that.

RUWITCH: The leadership lineup announced last weekend was seen to be short on people with economic reformist credentials and long on Xi loyalists.

BEDDOR: The outcome clearly, from a market perspective, meant just less scope for anything that opposes Xi's convictions on economic policy.

RUWITCH: But Chinese markets were falling, and investor sentiment was already wavering before the party congress. A survey published this week by the American Chamber of Commerce in Shanghai highlights some of the reasons.

Sean Stein is chairman of AmCham Shanghai.

SEAN STEIN: If we look at the level of optimism, it's the lowest level we have on record.

RUWITCH: Lockdowns and COVID policies are a big part of it, he says. There's also less transparency now and more regulatory hurdles. On top of it all is the growing antagonism between the United States and China.

STEIN: I think as technological competition, other aspects of economic competition between the United States and China continue to increase, it's going to become more difficult for many of our companies to operate and more costly to comply.

RUWITCH: And that reality has been sinking in. Only 30% of the companies AmCham surveyed are increasing investment in China this year. One in six companies said they're considering moving some or all of their operations elsewhere.

Alicia Garcia-Herrero is chief economist for Asia Pacific at the French bank Natixis. She says she was kind of amused by the market reaction to the leadership lineup this week because, in her view, it almost doesn't matter which bureaucrats Xi Jinping surrounds himself with at this point.

ALICIA GARCIA-HERRERO: China's economy is decelerating rapidly. I mean, no Superman team - OK? - can stop this.

RUWITCH: She says that's because of structural problems - a shrinking and aging population, an oversupply of infrastructure and capacity, high debt and falling return on investment. And those things, she says, are like forces of gravity - hard to overcome.

John Ruwitch, NPR News, Shanghai. Transcript provided by NPR, Copyright NPR.

John Ruwitch is a correspondent with NPR's international desk. He covers Chinese affairs.