Curtains closed on 18th national communist party of China congress
November 19, 2012 / By Mark Ho
The closing of the 18th National Congress of the Communist Party of China marks a significant milestone for the change of leadership at the top-most echelons of the world’s second largest economy. Although the government leadership handover will only take place during the National People’s Congress in March next year, the change of guard within the Party’s leadership has already removed the bulk of political uncertainties. We think that investors can be relieved that over the near-to-medium term, not much has or will change in terms of policy inclinations.
In his maiden speech as the party’s new Secretary-General, Xi Jinping revealed little about ideologies and focused more on pledging his commitment to serve the people, improve their livelihoods and stamp out corruption. The next window of opportunity to get a better handle on where policy direction is headed would be during the Central Economic Work Conference next month, when the government sets the policy tone for the new year. Data in recent months has shown that China’s economic growth has stabilised and is rebounding slightly. With that in mind, we would not be looking out for new stimulus measures to be introduced but would expect existing growth supportive measures to remain in place. Little direct reference was made to the residential sector. But allusions to improving livelihoods of people and social inequalities would suggest that the current restrictions in place are not likely to be lifted any time soon.
In terms of economic reform efforts, initiatives that have already gathered momentum – expansion of services sector, liberalisation of RMB, increased access to credit by SMEs, expansion of pension and health care coverage, improvement of infrastructure and development of social housing etc. – are expected to continue and will remain very much the focus of the new government. Correspondingly, China’s real estate fundamentals can be expected to remain well supported by these structural drivers.
However, China’s economic transformation process is a complex one that would require tackling many other areas. In particular, reforms in the areas of financial markets, public finance, role and structure of SOEs, hukou system etc. would need to be accelerated in order to complete the economic growth transition. Although not new, driving further urbanisation was mentioned as a key area of development in Hu Jintao’s keynote speech during the Congress, suggesting that a lot more needs to be done in this area. These are very challenging issues where relatively less momentum has accumulated. As such, we do not expect to see major policies in these areas until a time when the domestic economic recovery is on a stronger footing at the very least. Furthermore, as with other new governments in the world and arguably more so in the case of China, a period of time is needed for the new leaders to consolidate their influence and power before any meaningful progress can be made in these difficult areas. For more clues on how these areas will develop, we would probably need to wait until the plenary sessions of the new CPC Central Committee next year or even later.
