DRIVING THE DAY
1. Xi Jinping ushers in PRC 3.0
Xi Jinping laid out his vision for China this morning in a three-and-a-half hour speech at the opening of the 19th Party Congress.
The key message: We have entered a new era.
The Deng Xiaoping era, which was all about making China rich, is now basically complete. The Xi Jinping era will be all about making China strong.
Xi illustrated this shift by proclaiming that the country’s “fundamental contradiction” has now changed.
The old contradiction had been a policy centerpiece since 1981:
- “The contradiction between the people’s ever-increasing material and cultural demands and an underdeveloped economy.”
So it’s big deal that Xi updated it to this:
- “The contradiction between the people’s increasing demand for a nice life and unbalanced and insufficient development.”
Xi was clear that this change will affect the way the Party operates:
- “[All party members] must recognize that the change is historical and affecting all aspects.
- It comes with many new requirements for the Party and state’s work.”
Xi’s argument: Economic growth is no longer the Party’s only goal. Building a strong country is a much more comprehensive endeavor.
hot: Priorities for cadres are changing. Business need to understand them, and be ready to react.
We’ve got A LOT MORE to say about Xi’s report. Get in touch to learn about our Premium Party Congress coverage.
DRIVING THE DAY, CONT’D
2. The top priority of Xi’s new grand strategy
Xi Jinping also laid out a new grand strategy for governing the country in this new era.
The strategy has 14 elements, and guess what’s on top?
Surprise, surprise. The number on priority is “ensuring the Party’s leadership in all work.” What’s more, the Party system should defer to the very top under “centralized and unified leadership.”
The Party will continue to take the lead in policymaking, while the government apparatus will be increasingly marginalized. In Xi’s eyes, the Party’s role is comprehensive. It is the CCP that should “signal the direction, formulate the big picture, make policies and promote reforms”.
Get smart: From the perspective of policy implementation, the leadership of the Party cuts two ways. The Party’s discipline mechanism should mean more consistent implementation throughout the system. But the Party system is more rigid, leaving little leeway for adjustment of policies that are poorly designed or otherwise unfeasible.
FINANCE AND ECONOMICS
3. Mood music: the economy
Everyone in Beijing – including us – has been focused on Xi Jinping’s speech today.
We’ll be further dissecting it over the next two days – looking at new areas of emphasis and identifying signposts for changes in the economic and policy environments.
But it’s important to remember that in many ways the Party congress largely reinforces dynamics that have been in motion for years.
The Wall Street Journal’s Ling Ling Wei highlights one such dynamic in a meaty piece that is well worth the read. It outlines the direction that economic policymaking has taken since 2015:
- “Over a few months [in 2015], China’s commitment to market forces crumbled.”
- “The government cracked down on investors who had bet on stocks to fall. And the central bank set aside all other priorities to prop up the yuan, whose weakness was driving huge amounts of capital out of the country.”
- “The conclusion of the Chinese leadership since then, say officials and government advisers, has been that the up-and-down cycles of the markets, something they can’t control, make outcomes too uncertain.”
Our take: Lingling is right on. Don’t expect the congress to change this trajectory.
FINANCE AND ECONOMICS
4. Quick reminder: Q3 GDP growth out tomorrow
Have we mentioned that everyone is focused on the Party congress? Ok, good.
Something to keep in mind as we think through the implications of today’s political event is that markets are still trading, the economy is still in motion and everyday government functions are still happening.
On Thursday morning, for example, the stats bureau will release Q3 GDP data. On a real basis, growth looks like it slowed a touch last quarter, down from from 6.9% y/y in Q2.
What to watch (1): If the official growth numbers are steady from Q2, or even show a slight improvement, get ready for a deluge of commentary on the politicization of China’s economic data. Those comments won’t be wrong, but they won’t be new either.
What to watch (2): We mentioned this on Monday – even if there is a slowdown in real growth, price movements should mean the economy accelerated on a nominal basis. For China’s industrial companies this is the number that matters, because it means cash flows (and debt servicing capacity) remained solid.
FT: China third-quarter GDP: 4 things to watch
FINANCE AND ECONOMICS
5. CBRC keeps playing catchup on consumer loans
The ever-reliable 21st Century Business Herald gives us a quick break from politics in a piece that outlines the CBRC’s ongoing efforts to crack down on consumer loans.
For about a month, the CBRC has been increasing its efforts to make sure that consumer loans don’t seep into the property market. The efforts started in Beijing, Shenzhen and Jiangsu (see Tip Sheets from September 13 and 21), and they are now being broadened throughout Guangdong province.
Banks and online lenders are lowering the maximum amount that a consumer can borrower to RMB 300,000 – that’s definitely not enough to buy an apartment. And if lenders find that loans have been misappropriated, they demand an immediate return of the funds.
What to watch: To us it looks like the proliferation of various property restrictions is finally starting to work – a full year after the initial property restrictions were first implemented.
A weaker property market should drag on growth in 2018 – something that the steel industry is already . . . uhhh . . . steeling for (see Caixin link).
21st Cent Biz: 7家银行消费贷调查：多数额度与期限双降
Caixin: Slowing China Steel Consumption Stymies Global Demand Growth
POLITICS AND POLICY
6. WeChat does its part for a stable congress
The congress is disrupting business and everyday life in the capital. We were in Beijing for the last Party congress – this is nothing new.
But as of last night in China, things shifted to a new gear (Gizmodo):
- “Now, popular Chinese social media app WeChat has begun restricting how its users can use the platform in an effort to offset its potential use in protests.”
- “Per TechCrunch, ChinaChannel contributor Matthew Brennan noticed that the app has suddenly restricted the ability of users to change their ‘avatars, nicknames and taglines’ until the end of October.”
- “The decision effectively blocks one low-level method of protest sometimes common on social media sites: changing profiles to display signs of solidarity with activists.”
We just tried it. Nothing doing. The last 24-hours worth of selfies are all for naught.
Get real: Kidding aside, the Party isn’t taking any chances for disruption of the congress. More generally, when it comes to the smooth functioning of business vs. politics, politics will always win. We shouldn’t be surprised about that.
Any WeChat users outside of China given this a shot?
Gizmodo: China Blocks WeChat Features Ahead of 19th National Congress