It is still not clear whether China’s new leaders will advance economic reform
JUST days after the re-election of Barack Obama in the world’s biggest economy, China is deciding who will run the world’s second largest. For investors looking to put their money into this fast-growing market, understanding both the views and backgrounds of China’s new leaders is of the utmost importance.
Hopes are high that this leadership change will bring about a new economic direction for China. Since the National Congress of the Communist Party opened on 8 November, senior officials have made it clear that Beijing intends to push ahead with economic reform. The idea is to encourage average Chinese consumers to spend more and to eventually rebalance the nation’s growth away from the decades-old investment-led model. As part of this, during his speech to over 2,000 handpicked delegates, Chinese President Hu Jintao reaffirmed past pledges to institute market reforms – including promises to loosen controls on interest rates and China’s currency, the renminbi.
The presumed next president, current vice president Xi Jinping, is seen as a possible reformer. Xi was sent to the countryside during Chairman Mao’s terror-filled political campaign of the 1960s, the Cultural Revolution. On the back of this, many China watchers believe that his administration could be more willing to embrace reforms, given his firsthand knowledge of how a liberalised economy can improve people’s lives. The son of a revolutionary leader, Xi also has military connections and is part of the educated elite.
Some analysts say Xi was chosen because he is known to be a consensus builder and would be able to push through new policies. Any efforts to open the Chinese economy further would likely provide greater opportunities for international businesses looking to sell products or services to China’s growing middle class.
But despite the government’s nod to the need for economic reform, it’s unclear how serious the new leaders will be about implementing real change. Both European and American business executives complain that market reforms have stalled in recent years. Some industries, like financial services, are still largely closed off to outside competition – more than a decade after China joined the World Trade Organisation. Beijing authorities have acknowledged the need to deregulate interest rates, a move that would deepen capital markets and stop encouraging investment at the expense of savers and consumption. But would the new leadership be willing to allow foreign financial institutions to compete freely and widely in China if there was a chance their own banks wouldn’t survive?
When it comes to true market reform, the question is whether the next generation of leaders will see opening up and deregulation as a positive for China. They’ll also keep a close eye on ensuring the long-term survival of the Communist Party.
Eunice Yoon is CNBC’s senior correspondent based in China.