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You might not have noticed it, but we are now living in a new era and it is called “socialism with Chinese characteristics.” The Chinese Communist Party’s (CCP) 19th Congress, which just concluded, is what ushered us into this new era. Although the CCP isn’t given to much fanfare, the changes it will bring deserve more than a trumpet call. Here is our take of what it all means:

  • President Xi has consolidated his power. This move came as no surprise to anyone, though the details suggest that we will have to keep guessing for at least a couple more years who his successor is going to be. The Politburo Standing Committee (PSC), the highest echelon of power within the CCP, features five new people—in addition to Premier Li Keqiang and President Xi—who have worked closely with the president in the past and are aligned with him. But the tradition of bringing in the next generation of leaders to the PSC during the last term of the administration has not been observed this time. All PSC members will be above or very close to the unofficial retirement age when President Xi’s second five-year term ends. This means no apparent successor for now, but it also opens up the possibility of President Xi staying in power beyond the typical two five-year terms. This is not our baseline scenario, but regardless, President Xi’s “thoughts”1 are now written in the party constitution at par with those of Mao Zedong, which means their shelf life will extend well beyond his presidential term. The party’s remaining arms (i.e., the Politburo and Central Committee) have also been churned up with 75%  new entrants, which would further cement Xi’s power within the CCP.
  • President Xi has redefined how China views itself and what it will aspire to become. Since 1981, the “principal contradiction” facing China has always been between “the ever-growing material and cultural needs of the people and backward social production.” President Xi declared that this “principle contradiction” has evolved into “unbalanced and inadequate development and the people’s ever-growing needs for a better life.” What is the big difference, you may ask? A seemingly subtle one, perhaps. But we believe this new “contradiction” will translate into policies that will prioritize better quality of growth (i.e., one that is more enduring and environmentally sustainable) rather than just higher growth; more equitable income distribution; and an emphasis on poverty reduction. This “thought” is enshrined in the party constitution as the guiding principle of policies at all levels of the party and the government. And it is what we believe will align the policies of local governments throughout the country with those of the center. In the past, local governments adhered to the mantra of “growth above anything else” based on the previous “contradiction” despite efforts by the center to reign in their excesses. Now, quality of growth becomes the priority. The longer-term aspiration is to build a prosperous, modern, socialist society by 2050 (the centenary of the founding of the People’s Republic of China) and achieve “the great renewal of the Chinese nation.”
  • In short, President Xi wants to “make China great again.” This may sound awfully familiar, but the notion of a “Chinese renewal” is actually different when you look at details.  Policies to address the new “contradiction” and achieve the Chinese dream will focus on supply-side structural reforms and innovation; support for the rural sector and regional development; the development of socialist market mechanisms; and further market liberalization. A big overarching theme is the international reach of this aspiration that is reflected in the Belt and Road Initiative (BRI)2 as well as in China’s increasing role in international fora and as a promoter of international trade.


What Does This Change Mean for China’s Short-Term Policies?

Until 2020, which is also the centenary of the establishment of the CCP, the emphasis will be on containing economic and financial risks, poverty reduction and environmental protection. More specific details will likely be ironed out at the National People’s Conference of the party in March 2018, but in the meantime, we believe these policies will translate into more financial sector deleveraging (as a result of tighter and better coordinated regulatory policies); an extension of mixed-ownership reforms to more state owned enterprises (SOEs) to increase their productivity and reduce their leverage; and more capacity reduction both via closing zombie SOEs but also through stricter enforcement of environmental regulations. Housing policies are also likely to stay tight to discourage speculation, although we are less certain about their effectiveness in the long run, without allowing other venues for households to diversify their assets—and without broader land and tax reform. Broadly, we expect these policies to moderately slow real gross domestic product (GDP) growth to about 6.4%-6.5% next year, down from about 6.8% this year. These policies are still in line with the target of China’s leadership to double nominal incomes by 2020. But the party leadership skipped a reference to an explicit growth target this time, thereby suggesting some tolerance for slower growth, should it contribute to deleveraging and result in a higher quality of growth. Here are more details on our expectations:

  • We believe financial deleveraging will continue gradually. The tightening regulatory measures on financial sector leverage, especially via wealth management and other so-called “shadow-banking” products, are already delivering some results, and we expect this trend to continue. Over the summer, President Xi elevated the priority of containing financial sector risks to a matter of national security and the government’s institutional machinery has been upgraded to ensure better coordination across regulators, with increased powers to the People’s Bank of China (PBOC) for macro-prudential policies. In terms of monetary policy, we expect the PBOC’s tightening bias to continue with increasing use of a slew of liquidity facilities to manage excessive volatility while at the same time ensuring adequate credit flow to the real economy.
  • We expect SOE reforms to accelerate somewhat and produce more winners in the “new economy.” There are three key elements to these reforms: the extension of production and capacity cuts beyond steel and coal sectors to other “dirty” sectors such as aluminum and cement; the restructuring of zombie SOEs; and mixed-ownership reforms at selected SOEs. We expect the first element to support commodity prices as production cuts in steel and coal sectors did in 2016. How much genuine restructuring of “zombie” SOEs will take place is yet to be seen. However, perhaps the more important element of the SOE reform agenda is the mixed-ownership reforms that have been piloted since 2015 and will be extended to other sectors. Make no mistake, although these reforms will for the first time give a role to the private sector in managing these companies (in return for new technology and production upgrades), the CCP’s control of SOEs will remain essential. The ultimate goal is to improve efficiency of “national champions” to make them globally competitive and facilitate overarching national priorities such as the BRI. Hence we expect the state and private capital to be even more aligned by the CCP leadership’s goals. To prioritize environmental concerns, mixed-ownership reforms are likely to favor sectors that include providers of natural gas, water and waste treatment, soil remediation, and renewable energy. As a result of these reforms, we expect slower debt accumulation at SOEs, but not a fast decline in leverage that could become disruptive. We also expect China’s fiscal policy to mitigate any substantial effects of these policies on dislocated workers and on regional growth.
  • These are positive developments, in our view. We believe there is no reason to be concerned over a gradual slowdown in China, because this new era has the potential to put China on a more sustainable growth path and is good for global economic stability. Going forward, we believe that two factors—the further liberalization of Chinese markets; and the continued rebalancing of its economy away from investment-driven to productivity-driven growth, and from savings toward consumption—will support global trade and growth.

Long live the Chinese dream!

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  • 习总书记已成功巩固权力。这一动作丝毫不让人感到意外,但细节表明我们至少得再等几年才能知道他的继任者是谁。除李克强总理和习总书记以外,中国共产党内部的最高权力机构——政治局常务委员会还新进了五名成员。这五名新成员都曾与习总书记密切共事,并始终与他保持一致。然而,在最后一任执政期间将下一届领导人选举进入本届政府的这种传统做法在本次会议上并未得到遵循。在习总书记第二个五年任期届满后,常委会所有成员都会临近或超过并未明文规定的退休年龄。这意味着现在还不能看出继任者会是谁,但也为习总书记在典型的两个五年任期届满后继续执政提供了可能。我们并未将其视为基本情形,但无论如何,习总书记的思想3现在已写入党章,与毛泽东思想比肩。这意味着,习近平思想在习总书记任期结束后会在相当长的时期内仍然产生重大影响。中国共产党的其余机构(即政治局和中央委员会)也有 75% 的成员是首次当选,这会进一步巩固习总书记在共产党内的权力。
  • 习总书记重新定义了中国如何看待自身,以及中国希望成为什么样子。自 1981 年以来,中国面临的主要矛盾一直是人民日益增长的物质文化需要同落后的社会生产力之间的矛盾。习总书记称,这个主要矛盾已经转化为人民日益增长的美好生活需要和不平衡不充分的发展之间的矛盾。您不禁要问,有什么很大的区别吗?也许看起来很微妙。但我们认为,这一新矛盾意味着:政策会优先注重更高品质的增长(即更持久、更环保的增长)而不只是更高增长;收入分配更公平;注重消除贫困。这一思想写入党章,作为各级党委和政府的施政原则。我们认为,这会让全国各地方政府的政策与中央政府的政策保持一致。以往,尽管中央努力遏制地方政府的过火政策,但地方政府高举此前的主要矛盾大旗,仍遵循一切以发展为重的信条。如今,高质量的增长成为重中之重。长期愿景是到 2050 年(中华人民共和国成立一百周年)把中国建设成富强而现代化的社会主义社会,并实现中华民族的伟大复兴。
  • 总而言之,习总书记希望中国实现民族复兴。这可能有点老调重弹,但如果从细节上看,中国复兴这一理念实际上不同于以往。为解决新矛盾和实现中国梦而制定的政策将注重供给侧结构改革与创新,支持农业部门和农村发展,发展社会主义市场机制和进一步市场自由化。国际方面而言,这一愿景的一大特色体现在一带一路倡议4,以及中国在国际社会扮演着日益重要的角色并且不断促进贸易。



到 2020 年(也就是中国共产党建党一百周年),政策重心会放在遏制经济风险与金融风险、消除贫困和保护环境方面。更具体的事项很可能会在 2018 年 3 月举行的全国人民代表大会上敲定。但同时,我们认为这些政策会转化为:加强金融行业去杠杆化(通过施行更严厉、更协调的监管政策);混合所有制改革推广至更多国有企业,以便其提升生产率和降低杠杆;通过关闭僵尸国企及更严格执行环保法规,进一步缩减产能。为遏制投机,住房政策也可能保持收紧,尽管我们不大确定住房政策的长期效果,因为不允许家庭有其它途径多元化配置资产,并且中国缺乏更广泛的土地和税务改革。大体上,我们预测这些政策会导致实际国内生产总值的增长率从今年的 6.8% 适度放缓至明年的 6.4%-6.5%。这些政策仍然符合中国高层所制定的到 2020 年实现名义收入翻一番的目标。但是共产党高层这次并未提及明确的增长目标,这表明只要有利于去杠杆化并带来更高品质的发展,适度的经济增长放缓是可以接受的。以下是我们更具体的预测:

  • 我们认为金融去杠杆化会继续逐渐进行。针对金融领域杠杆化(尤其是通过财富管理和所谓的影子银行产品)而制定的日益收紧的监管措施已初见成效,但我们预计这一趋势会继续下去。夏天的时候,习总书记把遏制金融领域风险这一重心提升至国家安全的高度,并且政府的体制机构也经过升级,以确保各监管机构之间更好地相互协调配合,中国人民银行的权力也得到增强。货币政策方面,我们预计中国人民银行会继续使用各种流动性工具来收紧银根,以便管控过度波动,同时确保有足够的信贷流入实体经济。
  • 我们预计国企改革会适度加速,并会产生更多新经济的受益者。国企改革有三大要素:产量和产能缩减推广至钢铁和煤炭之外的其它污染行业,例如:铝和水泥;僵尸国企的重组;特定国企的混合所有制改革。我们预计,第一个要素会支撑大宗商品价格,就像 2016 年对钢铁和煤炭实行的产量缩减一样。但多大程度上真正对僵尸国企实施重组仍有待观察。然而,国企改革日程的更重要元素是混合所有制改革。2015 年以来混合所有制改革已试点,并将推广至其它行业。虽然这些改革无疑会让私有经济部门首次参与管理这些国企(换来的是新技术和生产升级),但共产党对国企的控股依然不会改变。最终目标是提升国有支柱的效率,让这些国企在国际上具有竞争力,并使之协助实施重大的国家优先级项目,例如一带一路倡议。因此,我们预计,国有资本和私有资本会与共产党高层的目标更加一致。为优先应对环保问题,混合所有制改革很可能青睐于天然气、水处理与废物处理、土壤修复、可再生能源等领域的提供者。我们预计,这些改革会减缓国企的债务积累,但不至于导致去杠杆化速度太快,以免对经济造成干扰。我们还预计,中国的货币政策会缓解这些政策对转岗工人和地区发展所造成的重大影响。
  • 我们认为,这些是积极正面的发展。我们认为,没有理由可担心中国经济逐渐放缓,因为这一新时期有可能把中国带向更可持续发展的路线,有益于全球经济稳定。放眼未来,我们认为有两大要素会支撑全球贸易与增长,即中国市场的进一步自由化,以及中国经济继续从投资驱动型增长转变成生产率驱动型增长,从储蓄型经济走向消费型经济。


  1. ^A “thought” is above a “theory” for CCP and this is the second time after Mao Zedong that a president’s views have been elevated to “thought” level.
  2. ^A mega development project connecting Eurasia and several maritime routes to China.
  3. ^对中国共产党而言,“思想”的地位高于“理论”。这是继毛泽东之后,第二次有总书记的观点上升至“思想”的高度。
  4. ^一个使中国连接欧亚大陆和一些海运路线的大开发项目。