The Chinese Communist Party’s 18th Congress brought little progress to its willingness to implement deep policy reforms, analysts said after the country’s new leadership was announced on Thursday.
Most of the 7 members of the Politburo Standing Committee (PSC), the party’s main decision-making arm, are conservatives while “the most vocal supporters of political reforms were not promoted,” Flemming Nielsen, senior analyst at Danske Bank, said.
Xi Jinping was appointed chief and Li Keqiang deputy chief of the party and are expected to take over in March as China’s president and prime minister.
Wang Qishan, the current vicepremier, economist Zhang Dejiang, who was educated in North Korea, Zhang Gaoli, communist party chief in Tianjin, Liu Yunshan, a conservative minister of propaganda, and Yu Zhengsheng, the communist party’s head in Shanghai, are the other 5 members.
Wang Qishan was credited by many analysts as being a reformer but Mark Williams, chief Asia economist at Capital Economics, pointed out that Wang “has been shunted into a role that gives him oversight of Party discipline rather than economic policy as many had hoped.”
This means that greater authority over economic policy will be put in the hand of Li Keqiang, the future prime minister.
“The fact that Li is a protégé of [outgoing president] Hu Jintao means many expect him to put greater emphasis on promoting social welfare rather than economic liberalization,” Williams said.
However, analysts concede that the party will have to continue and perhaps even speed up some economic reforms. “We are not certain that personalities [in the PSC] will matter that much,” Societe Generale’s China analyst Wei Yao said, adding that although “phrases regarding party ideology and doctrines are largely unchanged,” there are signs of “a better understanding of the pressing challenges at hand” and more attention is likely to be paid to sustainability and reforms.
GROWTH NOT EFFORTLESS
Yao pointed to a speech by Hu at the opening of the Congress which for the first time mentioned a household income target, saying that “this is a sign that the party now regards income distribution as (at least) as important as growth.”
Regarding economic growth, the speech set a goal of doubling China’s 2010 real GDP by 2020, implying an average growth rate of 7% for the next 8 years.
“In our view, achieving the GDP target will not be as effortless as in the past decade, during which real output nearly tripled,” said Yao.
An ageing population, slower urbanization and a diminishing catch-up effect will lower China’s structural growth over the next 10 years to between 6% and 7%, she predicted.
“In addition, there is significant downside risk stemming from past few years’ unchecked credit growth and capacity expansion,” Yao added.
The liberalization of the financial sector and China’s move towards a fully convertible currency and a floating exchange rate will be “pivotal” in reforms needed to “soften the decline in China’s long-term growth,” Nielsen said.
If the new leadership pushes through “significant changes” to economy policy such as further liberalization of the interest rate, weakening the ties between state-owned banks and state-owned companies and fostering an environment that encourages the growth of smaller, private firms, the economy is likely to expand at between 7% and 8% over the next few years, said Williams.
“If however there is gridlock within the new leadership or if vested interests block reform, GDP growth could slow to 5%,” he warned.