China can expect smooth economic transition after party congress concludes

By Sara Hsu

China's 19th Party Congress was much anticipated, as the next top leaders of China’s government were to be announced.  While Xi Jinping and Li Keqiang remain on the Politburo Standing Committee, five other members retired and were replaced by up and coming officials.  The message on the economy was somewhat unsurprising, however, with more of the same broad policy targets anticipated going forward.

Xi Jinping, general secretary of the Central Committee of the Communist Party of China (CPC), speaks when meeting the press at the Great Hall of the People in Beijing, capital of China, Oct. 25, 2017. Xi Jinping and the other newly-elected members of the Standing Committee of the Political Bureau of the 19th CPC Central Committee Li Keqiang, Li Zhanshu, Wang Yang, Wang Huning, Zhao Leji and Han Zheng met the press on Wednesday. [Photo: Xinhua]

President Xi's address to the Party Congress

In President Xi Jinping's address to the Party Congress last week, he indicated that continuity of economic policy would be the order of the day.  Stressing the importance of the One Belt One Road policy, as well as continued emphasis on state owned enterprise reform with mixed ownership, President Xi appeared to suggest that these two most prominent aspects of his economic policy in his first term would continue to play a central role in his tenure for the next five years.

The One Belt One Road (OBOR) is Xi's flagship policy, and represents perhaps the most ambitious international economic policy in history.  Encompassing vast territories among three continents, the endeavor focuses on building up much needed infrastructure. The policy provides mutual aid to both China and developing countries, employing China's labor and material resources while connecting poor countries to the world.  Although there’s no lack of suspicion in some corners of the world that the grand initiative is politically self-serving and even excessively risky, over 100 projects have already been undertaken globally.

State owned enterprise (SOE) reform has centered on reducing inefficiencies among SOEs. The effort centers on reducing indebtedness of these firms and providing new sources of funding. One such source comes from mixed ownership, permitting private capital to be invested in SOEs. Notably, while private interests have been permitted to invest in SOEs, they are not expected to make critical corporate decisions. China has increased the pace of its SOE reform toward mixed ownership, completing 48 deals to inject private capital into SOEs in the first half of this year alone.

On the financial front, President Xi committed only to the broad policies of financial reform and financial stability.  Details of these policies will most likely be worked out at a later date. However, he did state that the economy would be further opened up to foreign investors.  To this point, China Banking Regulatory Commission Chairman Guo Shuqing has already stated that China would give overseas banks more room to expand their business, while China Insurance Regulatory Commission Vice Chairman Chen Wenhui invited foreign insurance companies within China to enter into the health, catastrophe, and pension sectors.

Xi Jinping (C), general secretary of the Central Committee of the Communist Party of China (CPC), and the other newly-elected members of the Standing Committee of the Political Bureau of the 19th CPC Central Committee Li Keqiang (3rd R), Li Zhanshu (3rd L), Wang Yang (2nd R), Wang Huning (2nd L), Zhao Leji (1st R) and Han Zheng, meet the press at the Great Hall of the People in Beijing, capital of China, Oct. 25, 2017. [Photo: Xinhua]

Significance of those appointed

Five members of the Political Bureau Standing Committee are retiring, with only President Xi Jinping and Premier Li Keqiang continuing on.  It is important to note that President Xi's reappointment itself is of significance. Xi's political strength has been consolidated during this important meeting, enshrining what is now known as Xi Jinping Thought. This ideology contains 14 principles, including a focus on the authority of the party. A politically strengthened Xi and the continuity of his leadership are likely to stabilize markets and ensure that the political transition has a net positive effect on the financial economy.

Premier Li has been favorable toward economic reform as well as financial stability.  Li supports opening up some sectors to more foreign investment. He has also favored inclusive growth through job creation, as well as stabilizing policies like capacity reduction.  While Li has played an important role in laying out China’s annual growth targets, China appears to de-emphasize the practice of setting and meeting specific growth targets.  

New Standing Committee members include Wang Huning, a top Communist Party theorist, Wang Yang, Vice Premier of the State Council and former Party Secretary of Guangdong Province, Zhao Leji, former Party Secretary of Shaanxi Province, Li Zhanshu, Director of the General Office of the Communist Party of China and chief of the General Office of the National Security Commission, and Han Zheng, Party Secretary of Shanghai. 

President Xi stated Wednesday that next year will be the fortieth anniversary of Deng Xiaoping’s opening up China to market forces, and that he will continue the process of reform. As he looks to become the strongest leader since Deng, some experts expect he will further transform China into a market-based economy with Chinese characteristics.

(Sara Hsu, associate professor, the State University of New York at New Paltz)