China Research

October 16 this year should lead to a calendar entry by many politicians and business people around the globe. It is the day when China will start the five-yearly National Congress of the Communist Party (CCP National Congress, CCP NC), the 20^th convention of this kind so far. But why is October 16 so special? The answer is very logical after having given some more details.

All important political appointments will happen in October

On October 16, 2300 CCP delegates from all over the country come together in Beijing to select more than 200 CCP members for the Central Committee of the CCP. After this first important step, things become even more interesting since the new members of Central Committee make their selection of 25 powerful members of the Politburo of the CCP. The members of the so-called Standing Committee (SD) will be appointed as well – by far the most powerful decision makers in China with currently totally seven people.

Currently, the Standing Committee still has to some extent a collective leadership. However, also within the SD, Xi Jinping’s power was enlarged markedly in recent years. During this time, Xi obviously worked successfully for being selected as the head of the CCP for a third term – indeed a very unusual renewal. Before him, only the CCP legend Mao Zedong had managed such an accumulation of personal power.

It seems to be a safe forecast that Xi will be re-appointed as head of the CCP and probably also be honored with the rare attribute “Chairman of the CCP” – a privilege that so far only Mao could enjoy. It is certainly worth-while mentioning as well that Prime Minister Li Keqiang will not have a third term and instead retire next spring. Also Li’s successor will be presented in the middle of October.

Altogether, it appears obvious that Xi Jinping created an enormous personal power platform for all important decisions which no one could foresee when he came into office a decade ago.

Chinese News agency Xinhua writes about the mood and the philosophy of the forthcoming CCP National Congress as follows:”The congress will hold high the great banner of socialism with Chinese characteristics, uphold Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the Theory of Three Represents and the Scientific Outlook on Development, and thoroughly implement Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” (http://en.people.cn/n3/2022/0831/c90000-10141553.html).
Everything seems to be prepared – in general terms.

Many relevant messages to the corporate sector

I cannot recommend sufficiently to politicians and corporations – with direct or indirect business connections to China – to carefully analyze all the messages that will come from the 20 ^th CCC National Congress. Many companies can be affected when it comes to future direct investments (FDI), sales, purchasing and also production in China – i.e. when planning future expansion, stability of presence, reduction or withdrawal.

I do not want to comment more on the October congress in this article – but I will come back to the results of this decisive convergation and its impact on the corporate sector at the end of October.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

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Sure, China has been in the headlines in the past two months, i.e. during a period that we call the Swedish summer. These headlines were politically to a high extent referring to the accelerating tensions between China and the U.S. When it came to economic news from China, I certainly recognized the downsizing numbers for GDP, PMI and retail trade – causing growth concerns in China itself but also globally.

However, I may have missed other interesting news from China since I myself work more relaxed during the short Swedish summertime – or these latter news did not cause broad attention. For these reasons, I usually try to find impatiently “lost” or overlooked news and statistics from the weeks before when coming back to work at the end of August – news still worthwhile to point at. Some examples are given below:

Revised official objective for GDP
Here we have something new of real importance. In July, the Chinese politburo made a change of its growth objective. But as late as in the beginning of March, Chinese political leaders had announced that this year’s goal for GDP would be around 5.5 percent – a number that I interpreted on March 29 as “quite optimistic” – i.e. before the new big Shanghai lockdown and the eruption of the drought were reported. Now, China wants GDP growth to become “best possible”.

This is a reasonable change. Hopefully, it will increase the credibility of GDP statistics. Furthermore, “best possible” should mean a better protection against ineffective growth stimuli that in the past were made just to meet an envisaged growth target. And finally, “best possible” may make it easier to explain growth distortions originated outside China.

More signs of a real estate crisis
It seems to be clear that the world outside China – and, of course, inside China, too – should have found out that a real estate crisis may be closer than most experts think (https://www.nytimes.com/2022/08/17/business/china-economy-real-estate-crisis.html). The decision on lower interest rates some days ago should mean another concrete warning.

More focus on President Xi Jinping
Looking at consequences of the new objective for GDP growth, it may occasionally favor President Xi Jinping, giving him in certain situations a logical excuse for not really having managed a satisfactory GDP development. On the other hand, the strongly increased personal power of President Xi Jinping in recent years turns also more direct responsibility to him as the number one political leader when things go wrong.

A first signal in such a direction could be observed during the whole zero- covid fight and also after the concluded Shanghai lockdown in the beginning of June. Xi Jinping’s widened power may also include more direct responsibility within the Standing Committee of the Politburo (which is the most important political decision-making institution in China), particularly when he has entered his third term at the end of this year.

The breakdown in the climate negotiations between China and the U.S.
This recent accident is certainly negative. But how negative? I believe that many commercial people would like to read more about the possible consequences of this breakdown.

Western companies and their supply chains from Taiwan
Since the start of the corona pandemic, Western governments and corporations have intensively discussed how and where supply chains from China can be reduced for sensitive products. China’s threats against Taiwan this summer lead to the same question concerning new risks for supply chain distortions.

Increasing drought problems
China has recently issued another serious drought alert for considerable parts of the country. In the past weeks, new heat records happened in certain regions. A lot of rivers and reservoirs have dried up. Water shortages continue to cause serious problems for agriculture and energy production. Interestingly, certain Chinese officials have partly blamed global climate change for the current drought. This would mean – which I think as well – that this year’s heavy drought is more than a short-term challenge (contrary to what other Chinese commentators argue).

Conclusion:  This overview confirms my previous conclusion that persistent updating of Chinese political and economic developments is necessary for the understanding of Chinese politics and economic trends.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

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The state of the Chinese economy has been worsening in recent quarters. There is no doubt about this – despite all statistical shortcomings. Which statistical indicators should I use? Despite many years of China research, I cannot discover any economic indicator that really could help me practically to come to applicable conclusions. May be with one or two exceptions in bad times coming from the central bank PBoC: cuts of the deposit reserve ratio for the commercial banks (which actually happened lately in April: https://www.ceicdata.com/en/indicator/china/reserve-requirement-ratio ) or

cuts of the (over-five-year) loan prime rate (LPR, http://en.people.cn/n3/2022/0521/c90000-10099686.html).

Sure, the current economic problems are not only “Made in China”. However, the corona lockdown in Shanghai and some other metropolitan megacities caused a lot of economic losses. The lockdowns were/are certainly based on decisions by China’s political leadership, headed by President Xi Jinping.

Instead of statistics, in my view, the best information about the economy can (currently) be obtained by China’s two main politicians, President Xi Jinping and particularly Prime Minister Li Keqiang, by their comments on the Chinese economy in general terms. Two fresh examples underline this analysis approach.

The Politburo, chaired by President Xi, on April 29: “We will strengthen macroeconomic policy adjustments to stabilize the economy, and strive to achieve the expected economic and social development goals for the full year”.

Prime Minister Li on April 14: “Since the announcement of the policy package, government departments have all taken proactive steps. We must redouble our efforts, in particular to accelerate policy implementation.”

The two examples above demonstrate that the two strongest political leaders sent clear signals of concern already six à eight weeks ago. On May 31 came the answer with 33 measures summarizing the needed stimulation of the economy by applying fiscal, financial, investment and industrial policies (https://www.reuters.com/markets/commodities/china-unveils-detailed-stimulus-policies-support-virus-hit-economy-2022-05-31/).

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

PS: After having dealt with a major project and having benefited from the enjoyable and relaxing Swedish summer, I will be back at the end of August. All the best to you all, Hubert

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