China’s 19th Communist Party Congress is fast approaching. While the meetings are primarily a political event, they will shed some light on the party’s broad economic goals. There will also be major reshuffling across party leadership this year. Read below for our synopsis and predictions:
Q: What is China’s Communist Party Congress?
A: The constitution of the Communist Party of China (CPC) requires a Congress to be held once every five years. At the meeting, which commences October 18 this year, top party leaders are appointed, broad policy priorities are announced and it is a chance to revise the party constitution.
Q: Why is this year’s Party Congress important?
A: If the CPC sticks to age limit rules for its members, this year’s congress will experience a big reshuffle. At least 11 of 25 Politburo members, including 5 out of 7 members of the Politburo Standing Committee (China’s top leadership body), are due to retire.
These retirements are significant as they signal an end of “the third generation leadership,” or the Jiang Zemin era. Jiang Zemin, president of China from 1993 to 2003, was regarded as extremely strong; his influence persisted beyond his retirement. Jiang actually selected President Xi Jingping as the successor to President Hu Jintao. But President Xi consolidated power very quickly in his first term, with great efforts to rid the party of Jiang’s influence. The reshuffle this year will see the very last of Jiang’s generation retire.
Q: What's to (and not to) expect?
A: Keeping in mind that key roles won’t be revealed until March 2018, we can expect President Xi to deliver a lengthy speech, similar to the US State of the Union address. The speech will summarize the past five years and outline broad policy priorities for the next five. The Party Congress is more a political event than anything else so the most we should expect are hints on key policy direction and details.
Q: What will the key economic focus be in the political report?
A: Details on economic policy likely won’t be available until the Central Economic Work conference in November or December. However, market participants will pay attention for any indication of new reforms.
The common perception is that President Xi will focus on economic policies that ultimately achieve his vision of the “Chinese Dream,” but in order to achieve these long-term goals, he knows the importance of putting the economy on a more sustainable path. In his mind, it involves:
- Resolving financial risks via coordinated regulatory tightening and stabilizing the pace of price increases in housing.
- Directing capital to the real economy through deleveraging state-owned enterprises, enforcing stricter rules around government debt, and lowering corporate financing costs of smaller, efficient companies.
- Continuing steps towards internationalizing the renminbi.
Q: How will the pace of reforms change after the Party Congress?
A: There is a lot of discussion around whether President Xi will accelerate the pace of reforms in his second term. One common argument is that because President Xi spent much of the first term consolidating power, he would be able to speed up reforms once it is clear he is operating from a position of strength after this Party Congress.
However, I don’t expect that the pace of reforms to change significantly, mainly because President Xi has already stepped up the pace of financial tightening this year, indicating that Party Congress wasn’t a huge hindrance to his reform agenda.
Stability continues to be key. The current pace of reforms is slowly bearing fruit without upsetting the growth cart. I expect President Xi will want to continue to balance the various facets of “stability.”
Q: What other major economic events in China should we be watching?
A: Central Economic Work Conference (CEWC) – held in November/December; will provide more details on policy direction for the year ahead.
National People’s Congress (NPC) – likely held in March; exact government positions will be revealed.
This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. This information is subject to change at any time without notice.