China Research

On November 8, the National Congress of the Communist Party with more than 2000 delegates will start its convention in Beijing and some days later select its next political leadership for – probably – the next decade – a decade that will be much more difficult to surmount than the previous one.

The powerful politburo will almost completely be replaced by new faces, and probably seven/five out of nine/seven individuals of the even much more powerful inner circle Politburo Standing Committee will have the same change, i.e. that only the – most probably – forthcoming Party  Leader  Xi Jinping and future Prime Minister Li Keqiang will keep their seats in this forum of all important decisions (currently considered as number six and seven).

A lot is currently discussed about the future political, social and economic course of Xi Jinping. But this discussion is too simple-minded since the Party Leader is not making decisions on his own. He has to find consensus himself within the Standing Committee which mostly urges for a “middle-of- the-road position”. This line can only be left in extraordinary cases,  like the opening-up policy by Deng Xiaoping almost 35 years ago. Currently, such moves cannot be seen. I still cannot see Xi as a major reformer, neither in political nor in economic terms. But nobody knows what will happen in the next, very challenging 10 years. Not many scenarios can be ruled out completely.

Political challenges

Discussions about future policy and strategic issues were not taken up in the past months  by  the leading candidates for China’s new leadership. However, it seems to be completely clear that domestic issues will have to /should dominate politics in the future. This may concern amoung other areas

–  institutions  (including the fight against corruption and more application of the rule of law)

–  transparency (also an institutional factor)

–  better environment in all respects (quality of food and water included)

–  acceptable minimum social security standards for the whole nation

–  acceptable health care for the whole nation

–  better income distribution.

All post-war leaders had so far their political legitimacy, lately particularly high economic growth and internationalization. In my feeling, the new Chinese leaders will have to look mainly for acceptable growth – which may be closer to 8-9 percent than maximum growth around 10 percent as seen in the past two decades. But such a development will assume that the above-mentioned political challenges will be taken seriously by the new leaders.

Economic challenges

Many of the future economic challenges have a nexus with politics or globalization. Some of them are mentioned below (but have been described more thoroughly by me in earlier pieces).

They are, for example (without ranking):

–  generally: more marketization and transparency (vs political control)

–  modernization of financial markets (institutions such as the stock exchanges and bond markets, instruments, products for savers, supervision, etc)

–  cleaning up the state-owned banks (and make them more transparent)

–  financial deregulation (domestically, cross-border, sequencing)

–  transparency and the creation of sustainable real total government debt (central and local)

–  modernization of monetary policy

–  modernization of exchange rate policy

–  new growth model (higher share of private consumption in relation to GDP)

–  creation of conditions for improvements of corporate productivity and industrial value chain

–  creation of improved conditions for product quality and services

–  decrease of the state-owned corporate sector

–  decline of regional disparities

–  creation of strategies for gradually worsening demographic conditions.

 

This leads us finally to three crucial questions (which cannot be elaborated in this little blog contribution):

–  Can the new Chinese leaders achieve an appropriate way of combining state intervention and marketization?

–  How sustainable are Chinese current account surpluses in the long run?

–  What happens the day when China’s yuan finally achieves the status of a convertible currency (probably not within the next decade – but serious preparations may start during Xi’s leadership)? How will the U.S. and the U.S.dollar react on such a change?

We stay here for today – predicting no  major changes of wind in the foreseeable future. Gradual and smaller steps forward, however, should continue in the next years. Political, social and institutional strategy considerations should gain political momentum in the next decade – maybe somewhat at the expense of economic growth.

 

Hubert Fromlet
Professor of International Economics
Editorial board

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