19th Party Congress set to usher in changes as Politburo reworked

President and premier will retain positions but most members of core body might be replaced, giving Xi a chance to consolidate power

PUBLISHED : Wednesday, 04 January, 2017, 6:38pm
UPDATED : Wednesday, 04 January, 2017, 10:49pm

Despite being a one-party state, China does have a political cycle, which turns every five years. The event that marks the turning of the cycle is the Communist Party of China’s (CPC) Party Congress. The CPC will hold its 19th Party Congress in the autumn of this year, making it one of the key political events to watch.

At the 18th Party Congress four years ago, the leadership of Xi Jinping and Li Keqiang was established and an ambitious plan to reform the economy was introduced; the upcoming 19th Congress will carry a similar weight for two reasons.

Time to shuffle the deck: season of political personnel changes in China’s Communist Party goes up a gear

Firstly, even though Xi and Li will stay on for their second term, a number of senior leaders – five of seven Politburo Standing Committee (PSC) members – will probably retire. A reshuffling of the PSC leadership could bring changes to a wide spectrum of economic and social policies in the coming years. Secondly, China is at a critical juncture of its economic transition, confronting internal challenges (such as slowing growth and structural imbalances) and external pressure from rising populism and protectionism globally. How the political reshuffle will transpire and what strategies the Chinese leaders will adopt to tackle these challenges will be important for the market and the future of the economy.

Here are a few likely outcomes of the Congress.

Power consolidation for Xi: With the changing composition of the PSC, one popular view is that Xi will seize this opportunity to promote his allies to important posts in order to cement his “core leader” position within the Party. Under this scenario, a more stable and centralised power structure at the top of Chinese politics could help Xi push forward long-term strategies. The pace of economic reforms and rebalancing could then accelerate beyond this year.

Reiterate the gross domestic product target: There is a wide expectation that the Party will reiterate its commitment of doubling GDP by 2020 from the 2010 level, which requires the economy to grow at an average rate of 6.5 per cent in 2016-2020. Many (such as the International Monetary Fund) have questioned the emphasis on short-term growth, as it drives policies towards low-quality stimulus at the expense of structural reforms.

However economic growth is a key source of the Party’s legitimacy, and meeting the growth target has been a priority for Chinese leaders. Therefore, we expect the growth target to be restated, meaning that economic policies will have to continue to strike a fine, but difficult, balance between short-and-long-term objectives.

Commitment to reform: The Party will probably reiterate its commitment to continuing the transition towards a market-based economy, by reducing structural imbalances, reforming the corporate and public sectors, and liberalising the capital market. China has made progress in many areas, but falls short in tackling the tough challenges involving the state-owned enterprises and debt. Things could move faster if Xi manages to gain more decision-making power. Otherwise, the reality of deeply entrenched vested interests could make reforms (in difficult areas) susceptible to more disappointments.

Continue party discipline and more assertive foreign policy: One of the major achievements of the current administration has been the avid campaign against corruption, designed to clean the Party’s image. Since the move started in 2013, tens of thousands of officials have been penalised and hundreds of thousands were investigated.

Despite concerns over political motivation of some of the actions, the campaign has gained broad support from the public. We expect the 19th Congress to reiterate the Party’s zero tolerance against corruption, but the anti-corruption campaign itself may gradually ease into a routine supervision, particularly if the Central Commission for Discipline Inspection chief Wang Qishan retires.

On the external front, there has been a noticeable shift in the stance of China’s foreign policy since the 18th Congress. A more assertive stance in the South China Sea has clashed with the United States’ “Pivot to Asia” strategy, resulting in tensions in the region. Economically, China has expanded its reach globally by initiating the Asia Infrastructure Investment Bank and One Belt One Road projects, and promoting the yuan as an international, reserve currency.

On trade, in light of the United States pulling out the Trans-Pacific Partnership, China has stirred up interests in Asia’s Regional Comprehensive Economic Partnership, trying to take a leadership role in setting rules for international trade. Finally, China has also become more active in the United Nations, Group of 20 and Asia Pacific Economic Co-operation forum activities. Such assertiveness in foreign policy may well continue after the 19th Party Congress.

Aidan Yao is a Senior Emerging Asia Economist, AXA Investment Managers