What We Know About China's 19th Party Congress And The Possible Economic Fallout

What We Know About China's 19th Party Congress And The Possible Economic Fallout

On October 18, China will hold its 19th National Party Congress, which will provide broad indications for economic policy in the coming years. While it has been projected that there will be significant changes among the top party members, President Xi is widely expected to be reappointed, and he will likely follow a similar reform trajectory, focusing on mixed ownership reform for state-owned enterprises and less orientation toward the market. Xi's record so far can provide some understanding of what economic policy will look like in the next five years.

The meeting ahead

The meeting this month will also determine the structure of China’s top leadership. A number of officials in the Politburo and Politburo Standing Committee may retire based on age restrictions, unless these restrictions are waived. The party congress will also signal whether Xi Jinping can be expected to extend his time in office past 2022. The world will be watching to find out if he allows a successor from a rival party to join the Standing Committee, as did Jiang Zemin and Hu Jintao, or whether only a less experienced Xi loyalist will be promoted. The latter would indicate that Xi may be headed for a third term in office.

Although specific economic policies are not laid out at the October meeting, who ascends to power and what is stated officially at this meeting sets a strong tone for the Third Plenary Session of the 19th CPC Central Committee in the fall of 2018, which will itself set forth an economic agenda for the next five years. Because it is all but guaranteed that Xi Jinping will remain in power and grow in stature after this congress, we can examine his preferred economic policies in recent years and predict what policy will look like.

The next five years

China’s current blend of state and market capitalism appears poised to become further ingrained in the economy. Over the past five years under Xi Jinping, sweeping economic and financial reforms have taken a backseat to the preservation of economic stability. The state has taken a heavy hand in financial markets, bailing out the stock market in the summer of 2015 when the stock bubble burst, and backtracking on exchange rate liberalization by reducing the role of market forces in that area. Reforms have also been slow in the services sector, and the level of state control has remained high.

The reform focus under President Xi has been on mixed ownership reform of state owned enterprises (SOEs). 2017 was supposed to be a year dedicated to implementing mixed ownership reform at the local level, carried out using pilot cases. The process maintains state control over SOEs while locating additional sources of funding for these enterprises. Similarly and more generally, Party control of enterprises is likely to be reinforced as it has been in recent years.

Forbes

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