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What to expect from China’s 19th CCP Congress
Pace of reform to be side-lined at 19th CCP Congress tomorrow; likely to pursue growth and stability in coming years
Mo Ji 17 Oct 2017

CHINA'S 19th Chinese Communist Party Congress (CCP) – the five-yearly event where a leadership reshuffle takes place – will be held on October 18 2017. While investors are concerned about potential changes to the pace of reform, it is likely that reforms will be side-lined, meaning no increase or decrease in the pace of reform.

Will there be a significant slowdown in reform after China’s 19th CCP Congress?
During a political transition year, reform will generally be side-lined. It is a safe play for different levels of bureaucrats to secure a seat or further promotion. This applies to many countries this year that are undergoing political transitions.

The markets’ most-asked reform questions on China have long been on the timeline of SOE reform and the timeline of property tax implementation. These constantly disappoint the market, as both are fundamental structural reforms with huge complexity, given the size of China’s economy and population. Further consolidation of SOE companies is the appropriate direction for China’s next stage of development. We already saw a lot of SOE reform in 2017, although there is no property tax implementation in sight.

Therefore, there will not be an increase in the pace of reform before the meeting, hence no slowdown after the meeting. Structural reforms will still generally be much slower than the market expects in the next five years of the new cabinet, as doubling GDP by 2020 (from 2010) is unshakeable.

What will China’s economic policy direction be after the leadership reshuffle?
The Chinese leadership reshuffle this October will not alter the current economic policy direction, as President Xi will start his second term with a more consolidated power base.

Given China’s target of doubling GDP from 2010 to 2020, the new leadership still under Xi will continue its stable growth policy. This implies that the real GDP growth rate for China will be around or even above 6.5% from 2017 to 2020. It also indicates that both monetary and fiscal policy will be accommodative, even though containing systemic risks remains important. China’s economic stabilization is the biggest contributor to global stabilization and recovery – over the next three years at least – and is still under-estimated by the market.

What are the key economic or market challenges that China’s new leadership faces?
There are key policy debates that haven’t yet reached a consensus. They are fundamental to the structural change of the Chinese economy. This includes but is not limited to:
1. Transforming the Chinese economy from debt financed to tax financed (very much delayed in the past five-year plans);
2. From consumption-led growth to demand-led growth (demand has two components, consumption and investment, and China still needs a lot of investment from the angle of green investments and upgrading);
3. The balance between market orientation and government intervention, and the speed of internationalization of the capital markets/FX markets, etc;
4. Policy design becomes a big challenge, and prioritization and sequencing becomes more important.

What does the leadership reshuffle mean for China’s economic and financial future?
China will push growth and currency stabilization in the global economy over the next five years, given its policy direction of maintaining steady growth, implementing structural reform, containing systemic risks, and upgrading and becoming more environmentally sustainable. Along with steady growth and structural reform, containing risks from a potential credit or property bubble bust, and preventing a hard landing become critically important after the reshuffle.

China will introduce a lot of measures to deal with systemic risks in the next five years. As for the financial future, Chinese equity and bond markets will become key global players which global markets can’t ignore, given China’s size and improving regulations, and ease of access for foreign investors.


Mo Ji is chief economist for Asia ex-Japan at Amundi Hong Kong Limited

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