- Unlike many observers, we do not expect this month’s closely-watched five yearly Party Congress to usher in major economic policy shifts. Cementing China’s existing (political and economic) system and stability remain key policy objectives and are not compatible with the bold, potentially disruptive, reforms and a more aggressive reining in of credit growth that others appear to foresee.
- President Xi Jinping will deliver a key policy document that is likely to focus on state-owned enterprise (SOE) reform and reducing capacity; deleveraging; financial reform; new urbanization; innovation, moving up the value chain and “Made in China 2025”, One Belt, One Road, and the environment. But actual policy implementation will be heavily influenced by political economy factors.
- In all, we expect a somewhat lower GDP growth target for next year; a focus on curbing financial risks and leverage in parts of the financial system but further solid credit growth; and gradual financial sector reform. We also predict some addition SOE reform, in part encouraged by a push to reduce pollution. But we expect the nature and pace of SOE reform to remain shaped by objectives such as creating (inter)national champions and disagreements on speed.
There are signs of a lack of consensus at senior level about issues like SOE reform and closing unviable companies. We expect reforms to continue, gradually, but see little appetite for steps that are economically or politically risky
At the 19th National Congress of the Communist Party of China, which starts on October 18, President Xi Jinping is expected to tighten his grip on power by having allies promoted to senior party and government positions. His keynote policy speech on the first day will set out the leadership’s priorities for the next five years.
So what is Xi’s likely vision for the world’s second-largest economy? In this Research Briefing, we outline our expectations for the economic policy priorities that will be unveiled and how we think they will actually affect policy implementation after the Congress.
What is on the National Congress agenda?
The National Congress, with its 2,300 delegates, will probably last about a week and will kick off a new five-year cycle. The gathering will approve several policy documents, including the key one to be delivered by Xi on the first day.
High level policy documents matter more in China than in many other countries. They are the result of months of negotiations and form the basis of policymaking by a vast government apparatus.
The recent experience shows how important these documents really are. The 18th Congress report, presented by Hu Jintao, Xi’s predecessor, in November 2012, focused on:
- the doubling of GDP and per capita income between 2010 and 2020
- “accelerating the change of the economic growth model…and …developing and expanding the service sector”
- “promoting strategic emerging industries and advanced manufacturing industries”; financial reform
- “greater emphasis on sustainable development and environmental protection” and “combatting corruption and promoting political integrity”
These have formed the policy backbone over the last five years.
At this point, the key questions around the 19th National Congress are: What will Xi’s keynote speech focus on? What will the actual impact on the economy be?
To start with the first question, in line with historical practice, the focus will be influenced by that of the documents of the third plenum (the November 2013 “reform blueprint”), the 13th Five Year Plan and recent policy documents such as that of the recent Financial Work Conference.
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