A Strategic Assessment of China’s Upcoming 19th Party Congress and Its Implications

19 Jul 2017

In politics, nothing happens by accident. If it happens, you can bet it was planned that way – Franklin D. Roosevelt

Just before this report went to print, news hit the wires that one of the conservatives and close allies of the old faction, Sun Zhengcai, had been removed from power (as party chief of Chongqing) for violating Party regulations and replaced by an ardent reformer and President Xi’s protégé, Chen Min’er (who was party chief of Guizhou before the change). This important development has positive implications on China’s structural reform and deleveraging policies in the coming years. I have incorporated this crucial change in the following analysis.

There have been major personnel changes at all levels of the Chinese government since 2016 in preparation for the second term of the Xi Jinping government, which will start in 2018. But the most crucial change will come when Beijing announces the new set-up of the Standing Committee of the Politburo (SCP) at the 19th Party Congress (expected in October/November this year). Except the President and the Premier, the other five SCP members will have to retire. There are many speculations on the composition of the new SCP, which will determine China’s growth and reform policy outlook in the next five years. Following is my educated guess based on our knowledgeable contacts in China.

Let us start with the fact that there are two confronting forces: the conservatives (old growth model supporters) versus the reformers (new growth model supporters). If we can figure out which force will dominate the new SCP, we can get some clues about the reform policy outlook, including state-sector reforms, debt-reduction, capital account convertibility, financial liberalisation etc., in President Xi’s second term. To perform the analysis, we have narrowed down the number of highly-likely SCP contenders to form different scenarios for assessment.

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