Predominantly the most important political event in China, the twice-in-a-decade National Congress of the Chinese Communist Party began on October 18. As a kick start, President Xi delivered a Party Work Report which reviewed the achievements in his first five years and outlined the challenges and goals for the next five years and beyond. Xi outlined his thoughts on the ‘new era of socialism with Chinese characteristics’ On the economic reform, he suggested further developments in the "advanced manufacturing industry", which includes medium and high end consumption, green and low carbon industry, sharing economy, modern logistics and human capital services. He has also pledged to deepen interest rate and exchange rate reforms, develop a comprehensive financial regulation system and reduce systematic financial risk. These are nothing new as the key aspects of the monetary and fiscal policies have already been lain down at the National Financial Work Conference in July.
Xi’s Power Consolidation
There are several events that worth attention in the following days. Yet, we believe the focus of the week-long Congress is on consolidation of Xi Jinping’s power. The Central Committee would be elected at the end of the Congress, likely on October 24. This would be followed by the first Central Committee Plenary session for election of the Politburo members (25 members) and the 7-member Politburo Standing Committee (the top leadership for the coming 5 years). The name list would be announced on October 25. Since he has become the General Secretary of the Central Committee of CCP in 2012 and the 7th Chinese President in 2013, Xi has been removing personnel he deemed disloyal using the reason of cracking down corruption. Undoubtedly, Xi’s cabinet would be composed of his loyalists so that he would cling to absolute power. To further cement his power, the authoritarian party would discuss amendment of the constitution at the summit. This is expected to incorporate ‘Xi’s thought’ in the constitution and Xi would be named the ‘party chairman’, a title never been used after Mao Zedong.
Dataflow Surprisingly Strong During Sensitive Moment
The macroeconomic data released over the past weeks have been positive. GDP expanded +6.8% y/y in 3Q17, in line with expectations but decelerated from +6.9% in the prior quarter. For the month of September, retail sales grew +10.3% y/y, beating consensus of +1.2% and August’s +10.1%. Urban fixed asset investment grew +7.5% y/y in the first 9 months of the year, moderating from +7.8% in the year through to August. The market had anticipated a growth of +7.7%. IP growth accelerated to +6.6% y/y in September, from +6% in the prior month. This came in better than expectations of +6.4%. During the weekend, the government released the inflation data. CPI eased to +1.6% y/y in September from +1.6% a month ago. This came in line with expectations. PPI, however, accelerated to +6.9% y/y, from +6.3% in August. The market had anticipated a mild improvement to +6.4%. The set of data is of particular political importance during this period of time. A strong set of data allows Xi to cement his power and claim that his thoughts/ theories are at work to building a ‘strong’ and ‘new era’ of China.