Macroscope | Why investors should care about China’s Communist Party congress
The five-yearly meeting to be held next month will see personnel changes in the top leadership that will have significant implications for economic policies, in particular the future of the country’s reform push
Despite being a one-party state, China does have a political cycle, which turns every five years. The event that marks the turning point of the cycle is the Communist Party of China’s party congress.
This year the party will host its 19th congressional meeting on October 18th. These meetings are important political events, as they often lead to significant changes in the party leadership and macro policies.
At the 18th Party Congress five years ago, for example, the leadership of President Xi Jinping and Premier Li Keqiang was established, and an ambitious plan to reform the economy and the political system, which included for example the anti-corruption campaign, was introduced. Significant policy changes have ensued since then, leading to profound impacts on the economy, the market and society at large.
There are two reasons investors should pay attention to this year’s congress. First, up to five members of the seven-person Politburo Standing Committee are due to retire and their positions will be filled by the next generation of leaders. The committee represents the pinnacle of the communist party leadership and the very top of China’s decision-making bodies. A major reshuffle in its composition will have significant implications for macro policies going forward.
Second, important policy signals will be contained in the political report by the party secretary, Xi Jinping. As China enters a critical juncture of development, how the senior leaders address the internal and external challenges will be important for the future of the economy and financial markets.
Our expectations are twofold: on the leadership reshuffle, we expect Xi to seize the opportunity to further cement his supremacy within the party. Recent personnel reshuffles at the ministerial and provincial levels have already enabled him to consolidate power to the extent that few previous leaders have managed to do. We expect this trend to continue in the lead up to, and during, the party congress.
To the extent that this helps to unify and centralise China’s policy decision making, it should be positive for structural reforms in areas where vested interests have slowed the progress so far.