Economy | Xi seen wary to push country reform

President Xi Jinping is expected to emerge from the twice-a-decade Chinese Communist Party’s congress that starts today as the most powerful figure in Chinese politics since Mao Zedong. Far less certain is what he’ll do with all that enhanced political clout. 

Global investors and executives hoping an emboldened Xi will tackle the big structural challenges facing China-from sprawling and inefficient state-owned companies to a massive corporate debt overhang-may be disappointed, according to analysts.

“The most likely scenario is a continuation of what we had in the last five years,” said Frank Benzimra, head of Asian equity strategy at Societe Generale.

Playing it safe makes political sense for Xi at a time when the economy is delivering positive surprises – growth has beat estimates for three consecutive quarters – and the international environment features saber rattling over North Korea’s nuclear program. But by delaying reforms to avoid short-term hiccups, Xi could also miss an opportunity to put the world’s second-biggest economy on a more stable long-term footing.

Markets will be listening when Xi addresses more than 2,000 delegates in Beijing to kick off the conclave. Among the existing priorities he’ll likely spotlight are the One Belt One Road campaign to promote infrastructure projects with trading partners in Asia and Europe and plans to spend 2 trillion yuan (USD300 billion) building a new city near Beijing.

“We believe the overall policy direction will inevitably lean towards the more cautious and conservative side,” economists Kevin Lai and Olivia Xia of Daiwa Capital Markets Hong Kong wrote in a report published last month. “The reform agenda could ultimately give way to the continuous quest for stability, and hence more control is more likely than more liberalization.”

Underlining how the economy has stabilized, a gauge of manufacturing in China rose to a five-year high in September, while data released Monday showed factory prices gained a more-than-expected 6.9 percent last month. Industries that stand to benefit from increased government support include health care, semiconductors and telecommunications equipment, according to Societe Generale’s Benzimra.

Comments from People’s Bank of China Governor Zhou Xiaochuan that economic growth could rise to 7 percent helped drive up yields on Chinese bonds yesterday, said Wu Sijie, senior trader at China Merchants Bank. The 10-year yield rose 3 basis points to 3.74 percent, the highest since April 2015 on a closing basis, taking its two-day advance to 6 basis points.

Zhou’s comments suggest China’s economy will continue its strong performance into the final quarter of the year, Wu said.

Xi may also emphasize the strategic importance of reforming state-run companies, with the government taking steps to create globally competitive multinationals in strategically important industries like telecommunications, energy, financial services, said Fan Cheuk Wan, head of Asia investment strategy and advisory at HSBC Private Banking.

However, bigger economic policy issues might also need to wait for other meetings later this year and next year, including a gathering of the Party’s Central Committee known as the Third Party Plenum.

Xi will likely focus on well-known priorities of his such as the anti-corruption campaign, the One Belt One Road initiative and Made in China 2025, a plan to promote manufacturing innovation. Bloomberg