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2017 September
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Political and Economic Implications of the 19th Congress

Scheduled to be held this autumn, the 19th CPC National Congress (the 19th Congress) will not only draw the public’s attention to personnel appointments and movements, but also foreshadow the blueprint for the social and economic development of China in the future, which is another highlight of the 19th Congress.

 

Tse Kwok-leung: Stable and sound economy expected around the 19th congress

As the 19th CPC National Congress approaches, any significant changes in the Chinese leadership would catch much public attention. Tse Kwok-leung, Head of Economics & Policy Research, Bank of China (Hong Kong) Limited, admitted that the stability of Xi Jinping’s administration would not be affected even if there are changes in key appointments in the Politburo Standing Committee, as the governance of the Chinese President is becoming increasingly steady. He believes that over the next five years, China will continue to adhere to the established approach set out by the Central Government and make steady progress. It is expected that more momentum will be injected into the continuous development of the economy.

 

Economic reform in the Mainland reaps fruits

According to Tse, the strong economic impetus in the Mainland this year has been driven by three main factors. First of all, the greenback is weak. Secondly, the two-year adjustment of the RMB has resulted in an accumulated depreciation of more than 10%, meaning it could have already stepped out from the downward cycle. Thirdly, the Central Government is striving to optimize the exchange rate mechanism. All these show that the strength of the RMB against the USD would probably continue before the 19th Congress commences. Especially since the USD is expected to stay weak this year, relatively favorable conditions would be available for the RMB to sustain its stability.

 

Tse quoted data to point out that the Chinese economy has grown as much as 6.9% in the first half of the year comparing to last year, indicating a rebound in the overall economy. Export has particularly shown evident growth, possibly caused by the gradual recovery of overseas markets. Although the economy has been affected by the recent implementation of austerity policies and policies to curb real estate prices, and the growth in July has slightly slowed down, the economy is still expected to grow by 6.8% for the year under a positive environment, which is better than the 6.7% growth last year.

 

Sino-US trade subject to risks

Tse believes that the economy of Hong Kong may benefit from the continuously positive Chinese economy. “Hong Kong recorded a 4% growth in GDP in the first half of the year, performing better than expected. Private consumption, government expenditure and export all experienced rebounds. The Hong Kong economy is poised to be better than last year’s, with the full year growth expected to exceed 3.5%.”

 

Although the Mainland has sound economic fundamentals, Tse saw certain risk factors. For example, the economic and trade relationship between China and the US is volatile. “Earlier on, US President Donald Trump authorized his trade officers to investigate whether China has infringed intellectual property rights. The market is worried that this is only the beginning, and the US may initiate Section 301 investigation against China, which may eventually trigger trade sanctions against China, or even give rise to a trade war between the two countries. As such, there are still risks for temporary volatility in Sino-US trade relations. Close attention must be paid to the unfolding development.”

 

 

Wu Xiaogang: Significant personnel appointment reveals future policy directions

Bsides its economic significance, the 19th Congress also has profound implications for the political and social development of China at the present stage. According to Wu Xiaogang, Professor of the Division of Social Science at the Hong Kong University of Science and Technology, personnel changes in the Politburo Standing Committee may perhaps break the prevailing restriction on the retirement age. “All sectors of society are focusing their attention on whether Wang Qishan, a member of the Politburo Standing Committee, will join the other four members to step down, or if he will be reappointed by President Xi. It has also been speculated that he may even succeed Li Keqiang as Premier of the State Council and continue to doggedly carry out the Central Government’s anti-corruption policy directions.”

 

Wu emphasized that, should Wang Qishan remain in office, it will break the prevailing unwritten rule in China that the members of the Politburo Standing Committee would take office during their seventies and step down as they turn eighty. He commented, “The whole world is waiting to see whether there will be new rules to replace the old ones in the change of leadership. As such, the 19th Congress does not only lay out the framework for China’s personnel arrangement and overall development over the next five years, but also indicates the actual direction for the political, social and economic progress of the Mainland in the next 10 to 30 years. It has very important significance.”

 

Social harmony sustained amidst smooth implementation of policies

“Indeed, everything is just speculation at the moment. Looking back five years ago, rumors had it that an internal tug of war in power would appear in the 18th Congress. Yet, what happened proved many wrong. Not only that certain names thought to enter the Politburo did not show up, the number of Standing Committee members even dropped from nine to seven.” Wu pointed out that, after the 18th Congress, the power of President Xi became more centralized, resulting in smooth implementation of policies under the governance team that he led. It is believed that personnel movements in the 19th Congress will not affect this aspect.

 

Wu added that at present, the Mainland is making steady political, social and economic development. There is no struggle between different factions internally in the Central Government, nor is there any disagreement in any major reform or policy implementation. Later on, when the 19th Congress is convened, even if the Politburo decides to eliminate the age restriction in its personnel appointment, or to adjust any policy, both can be fully implemented after given the green light from senior leaders. The harmony and stability of society would remain completely unchanged.

 

“Belt and Road” extends China’s influence

The international landscape went through dramatic changes last year. Wu pointed out that, after Trump took office as US President, there were major changes in the overall administration. As for Europe, Britain has also kicked off the Brexit process. Wu emphasized that, as the world’s second largest economy, China’s position in the international stage is very different from the past. Added that Trump’s persistence on his “America First” policy since he assumed office, the US is now more distant from or even in tension with other countries. With the competitiveness of the two countries wax and wane, the global influence of China is continuously strengthening.

 

China is an export-oriented economy, and its primary export markets are Europe and the US. As such, its overall economic development was unavoidably affected during the financial tsunami. However, Wu believed that the Mainland has a robust foundation for economic development and therefore would enter the recovery period sooner. “To further enhance its autonomy in international relations, China is actively promoting the ‘Belt and Road’ initiative to strengthen its cooperative relationship with other countries and regions, which would on one hand expand markets, and on the other resolve the issue of over-capacity. Development of the Mainland economy is expected to grow even further.”