What does President Xi's strengthened leadership position mean for investors?

30/10/2017

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In this video, Charlie Awdry, China equities portfolio manager, shares his conclusions from the 19th China Party Congress meeting and discusses the ramifications for investors.
 
President Xi tightens his grip on China
Hi, Charlie Awdry here with an update on China at the conclusion at the Party Congress. Well, pretty much as expected, Xi Jinping emerges from the Party Congress an extremely strong leader. I suppose the extent of the strength is a little bit surprising. He now has an official thought in the party constitution. The last living leader to have that was, actually, Chairman Mao, so you can see the exalted company that he's now keeping. What that really means is he has extreme moral authority within the party and within China. What that really means from a policy point of view, I think, is what he wants will happen. So his projects of supply-side reform, ‘One Belt One Road’, and, of course, the modernisation of China, will certainly go ahead. There are checks and balances on him, but he's certainly extremely powerful.
 
A focus toward equality of growth  
His idea of socialism with Chinese characteristics into a new era will carry with it lots of different nuances, but one that I think might strike with the market is that they really may focus from overall growth levels and growth targets towards equality of growth, and that reflects a move to really try to improve people's quality of life in China and address income inequalities. What it means from a financial market point of view is it may mean that they actually drop this hard GDP growth target that has sometimes been like a rod for their back that they have to meet, and, actually, whilst that might be difficult for markets to accept that new reality, I think, actually, on a qualitative basis that would be much better for China. So let’s see how that plays out, but, certainly, President Xi is a strong man. 
 
Portfolio implications  
Have we made any direct changes to the portfolio as a result of what we've seen in the Congress? No, really, the Congress was about politics and about people and, actually, from here there will be various, you know, economic work conferences and work parties that will set policy out, and we may react to those in due course in the coming months and quarters, but certainly an important time in China, and a time for Xi to be anointed as an extremely strong leader. 
 
 
Glossary:
National Congress of the Communist Party of China: held every five years, the meeting sees the appointment of senior leaders including the all-powerful Central Committee.  Additonally, Congress also reviews and makes  necessary changes to the Party's constitution.
 
‘One Belt One Road’: an initiative by China’s President Xi Jinping to implement trade-boosting infrastructure projects following the ancient Silk Road from China through central Asia and the Middle East to Europe, and another route by sea linking China to Southeast Asia and East Africa with the aim of supporting growth and trade in developing countries including China.
 
Supply-side reform: includes efforts to decrease debt levels, cut excess capacity (when demand is less than optimal supply), reduce costs and shoring up weaker areas across all sectors in China's economy.
 
Xi Jinping Thought: a new body of political thought added to the Communist Party’s constitution; seen as a nod to President Xi’s increasing power, credibility, legitimacy and authority within China.

 

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