Markets have reacted positively to China’s announcement of another rescue package for the embattled property sector, the easing of zero-Covid rules and the Biden-Xi meeting just concluded in Bali. But our assessment is that none of these developments will bring lasting relief to its struggling economy. Worse still, Xi is doubling down on statist policies which smack of placing the economy on a war footing.

With China sentiment rock-bottom, it's not a surprise that the relaxation news has buoyed stocks, bonds and the yuan. Still, this is likely to be just a dead cat bounce. 

China is desperately trying to put a floor under its slumping property market, but the measures it announced could hardly be described as "sweeping" and are unlikely to lead to a major turnaround. Beijing's strategy is to ensure that developers have the financial resources to complete unfinished housing and that relatively healthy developers are able to access the credit they need to function normally as well as boost housing sales. 

Even with Beijing's newly invigorated approach to dealing with the downturn, we expect that the property sector's adjustment has at least another couple of years to run. 

Until then, the sector will continue to be a drag on growth, and Beijing's focus will be on limiting the fallout.

So far, lower borrowing costs and easier buying conditions haven't been sufficient to revive housing sales. Slumping house prices have boosted household precautionary savings and hurt consumer confidence and spending. 

Data for retail sales in October will be out on Tuesday and are likely to be bad. Moreover, with Alibaba and JD.com for the first time not disclosing final gross merchandise volume figures from their Singles’ Day promotions, it doesn't seem the November data will be any better.  

Don't expect consumer spending to be the sustainable growth driver China needs, without a decisive pivot away from common prosperity, increasing state control and the zero-Covid policy.

Instead, more evidence has emerged that after Xi's stunning victory at the just-concluded 20th Chinese Communist Party Congress, he has doubled down on conservative and even quasi-Maoist policies to boost centralized control over the country and its economy. One such example is the large-scale revival of gongxiaoshe, or supply and marketing cooperatives in the countryside, small towns and even big cities. 

A product of the Maoist era, gongxiaoshe used to be government-operated shops specializing in basic foodstuffs and agricultural tools in the countryside, with all prices are fixed by the government. By the late 1980s and early 1990s, however, these symbols of state control over the distribution of resources have been replaced by mostly privately run supermarkets in tandem with the large-scale migration of farmers into towns and cities.

Authorities in provinces and directly administered cities such as Beijing, Tianjin, Hebei, Inner Mongolia, and Chongqing recently announced that gongxiaoshe, many of which now stock items similar to those available in supermarkets, will be revived on a large scale in both rural and urban districts. Hebei now has 1,373 gongxiaoshe, and cooperative members in rural regions grew from 51,500 in 2016 to 333,000 last year. 

Since the prices are government-determined, the cooperatives are out-competing privately owned supermarkets and distorting price signals.

Another example of the trend towards top-down state control is the formation of Beijing-mandated alliances between China's three telecommunication SoEs and its three private tech giants - Tencent, Alibaba and JD.com. This is also straight out of Mao's playbook where inefficient state behemoths are gobbling up vibrant private firms. 

Worse still, while Xi's assault on the tech sector was not necessarily all bad if it diminished their monopoly power, these alliances look like preparing the economy to go on a war footing when a system of control over telecommunications and critical infrastructure will be key. We have discussed on numerous occasions why a military conflict over Taiwan is the main risk facing the world in the next five years.  

The revival of marketing cooperatives and enmeshing private and public firms in critical sectors are worrying developments: not only because they distort the market mechanism and increase inefficiency, but also in the context of Xi's dream to achieve Taiwan unification during his rule.

In this context, the recent relaxation of Covid rules is nothing more than the tweaking of a policy which is not only an inextricable part of Xi's stated achievements but has also provided Beijing with a honed system of public control. 

Xi will not give up the mechanism for public control that the zero-Covid policy provides although clearly the authorities are trying to recalibrate their approach.  

Finally, today's first face-to-face meeting between Biden and Xi since the pandemic started provided no indication that China may change course on any of the above. 

It is positive that Xi and Biden have restored communication between the two main global players. But it does not alter the fundamental direction of travel, with both the US and China determined to fight for supremacy. 

Conclusion

Markets are looking for any sign of good news, and that's why they rally so easily. The minor relaxation of zero-Covid is positive on the margin, but Beijing is not abandoning the trust of its policy so the spread dynamics should be watched carefully. 

Similarly, putting a floor under the slumping property market is understandably viewed as a plus. But without the necessary changes to provide a sustainable boost to growth, these measures will do little more than prolong this slow-motion real economy crisis.  

And naturally, more communication between the US and China would benefit relations.

But the fundamental trends of Xi's China are not so easily shaken off. Xi's desire for top-down control and recovery of Taiwan will remain the main factor affecting market performance as long as he is in office.

Policies may be tweaked and the US and China may find a détente for now. But in the long term, expect a China where the visible hand of the state -- not the invisible hand of the market -- sets the agenda, and the owners of capital, domestic or foreign, will be last on the list to reap any rewards.