How to read Xi Jinping’s status boost and power shuffle

‘Despite the centralisation of power, we do not think Xi will be a total authoritarian in decision-making either. Xi has managed, over the years, to assemble some very smart and capable people, who are able to provide practical economic advice’

PUBLISHED : Wednesday, 08 November, 2017, 7:46am
UPDATED : Wednesday, 08 November, 2017, 11:02pm

The Chinese Communist Party announced a new line-up of senior leadership at the First Plenum after the 19th Party Congress, which confirmed our expectation that President Xi Jinping has made further inroads into power consolidation by planting his close allies in key party positions.

Of the five new members of the Politburo Standing Committee (PSC) – the Party’s top decision-making body – three are seen as closely aligned with Xi, with others representing other factions. The resulting power split has led to some speculations that Xi has failed to take control of the PSC, and hence, only has a weak hand to play in driving policy decisions going forward.

We have a different interpretation. We think the new line-up of the PSC reflects that Xi is confident enough to preserve the symbolic power balance without diluting his own decision-making authority.

Given the anticipated roles that the PSC members will take, it is not hard to see that Xi and his allies will be in charge of all the portfolios that have tangible decision-making power, including policy designs, legislative approvals, anti-corruption and propaganda.

The concept of “collective leadership” has, in our view, been replaced by a greater centralisation of power, which makes the PSC composition a less relevant guide for the actual distribution of decision-making authority.

Another important sign of power preservation came from the leadership succession arrangement. A recent Party tradition has been to anoint a “designated successor” to the current leader by appointing him to the PSC five years before the handover. With no new PSC members born after the 1960s, this unwritten rule appears to have been broken.

We see two possible implications of this: firstly, Xi is intending to stay in power beyond his second term after 2022, which will make him the longest serving Chinese leader since Mao Zedong. Alternatively, it suggests that Xi is unsatisfied with the current power transition mechanism. While the arrangement creates continuity, it could also induce power divisions between the heir and incumbent, leading to potential political instabilities.

Such instabilities could be detrimental to Xi’s power control and induce policy uncertainties that slow China’s overall development. We may have to wait another five years to find out which one of these interpretations is more accurate, but, in the meantime, Xi has used this arrangement to further enforce his authority within the Party.

The final sign of power consolidation may seem symbolic to western readers, but symbolism matters in China. One of the most widely publicised achievements for Xi at this year’s Congress was the incorporation of his development theories, called “Xi Jinping’s Thought”, into the Party’s Constitution. While all past leaders have amended the constitution, to various degrees, only Xi Jinping, Deng Xiaoping and Mao Zedong have managed to put their names on the amendment.

One could go further by saying that, given “Deng’s Thought” was enshrined only after he passed away in 1997, the fact that Xi has managed to achieve this, while he is still in power, is an even more incredible demonstration of status that puts him on par with only Mao Zedong.

Putting this power to good use will be a key focus of Xi’s second term and beyond. With a much secured power base, Xi’s priority will shift from political consolidation (via anti-corruption) to multifaceted reforms designed to realise the grand visions that he sets out for the nation in the “China Dream”.

Among these, economic and financial reforms will be a key focus for investors. Given the importance of these reforms, we think Xi himself will likely take charge of major policies going forward.

Through the various “reform” committees he established in recent years, Xi will be actively involved in designing and managing these policies, in our view. And by placing more of his confidants in provincial and ministerial roles, Xi can also ensure the quality of execution will be improved from preceding years.

Despite the centralisation of power, we do not think Xi will be a total authoritarian in decision-making either. Xi has managed, over the years, to assemble some very smart and capable people, who are able to provide practical economic advice. In that regard, the rise of Liu He to the Party’s Politburo is encouraging, given his liberal view on the economy and a clear understanding on the urgency for reforms.

Overall, we remain optimistic that the pace of structural changes and economic rebalancing will accelerate in the coming years.

Aidan Yao is senior emerging Asia economist at AXA Investment Managers