威尼斯手机娱乐官网平台China macro:President Xi’s speech at the Party Congress

Liu He, who will be China’s top economic policy maker over the next
fiveyears, gave his first public speech overseas on Wednesday at
Davos.

  1. 威尼斯手机娱乐官网平台,President Xi outlined a plan for China in the long term, without
    mentioningthe 2020 growth target as his predecessor did in the past . We
    wonder ifthis means the government may allow more flexibility in growth
    over thenext few years. We will need to wait for more signals from the
    CentralEconomic Working Conference in December and the National
    People’sCongress in March to confirm if that is the case.

The much-anticipated 19th Party Congress will begin on 18 October 2017
and lastapproximately one week. With it, President Xi Jinping will begin
his second five-yearterm, helped by a fresh team of key policymakers.
After focusing on weeding outcorruption and internal party discipline in
his first term, President Xi will likelyconcentrate more on economic
development and structural reforms in his secondterm. In this report we
look at the economic policy agenda we expect the PartyCongress to set
for the next five years.

    Who is Liu He?: Mr Liu He has been viewed as President Xi’s top
economicadvisor since 2013, when Xi introduced him as “very important to
me.” He is alsoseen as the designer of the supply-side reforms that were
introduced inDecember 2015 and have had a significant impact on the
commodity space. Thatsaid, over the past five years Liu has largely
stayed behind the scenes. This is nolonger so. Last October he was
promoted to the 25-member Politburo, the party’stop decision-making
body. This March, he will likely become one of the vicepremiers during
the People’s Congress. He will also be a super-regulator,because he will
head the Financial Stability and Development Committee, whichwas created
last November to coordinate all financial regulators.

    2. President Xi’s long term plan does not have a quantitative
growthtarget. This is different from the plans from his predecessors who
oftenput explicit GDP targets. Instead President Xi aims to make
China”prosperous, democratic, civil, harmonic, and beautiful” by 2050.
Wethink it is wise not to set a numerical growth target for the long
term, as itimposes constraint on economic policies in a world with high
uncertainty.

    Maintaining steady growth. This is likely be the top priority for
two main reasons.

    The signaling effect of the speech: Wednesday’s speech by Liu in
Davosmarks his debut in front of the world. This is even more meaningful
as lastyear it was President Xi who made the Davos speech. As such, we
believethis is meant to be a clear signal that Liu will be the
spokesperson for China’seconomic policy over the next five years, and
the market should hear manymore speeches and interviews from him in the
future. For the Davos speechitself, we have five takeaways.

    3. The speech emphasized supply side reform as the key economic
policy.

    First, President Xi’s second term will coincide with the target date
for reaching thegovernment’s ‘First Centennial’ goal to ‘build a
moderately prosperous society’. Thisis linked to the target of doubling
GDP and income by 2020 from 2010 levels. Toensure this is achieved,
China will need to grow above 6.5% per year. Second, it’sbeen 25 years
since China became a middle income country. The experience ofother Asian
economies suggests that the next five years will be critical if China is
toescape the ‘middle income trap’.

    1. Globalization: The most important thing for Liu at Davos, we
believe, is toshow China’s support for globalization, just as President
Xi did last year. Atthe beginning of his speech, Liu emphasized that
China stood againstprotectionism and would make its financial market
more accessible to foreigninvestors. Recently, we find that the risk of
a trade war between China andthe US has been clearly rising. Thus, we
believe it important for Liu tocommunicate well with the US president at
Davos, and this might be behindthe recent rapid appreciation of the RMB
against the US$.

    President Xi mentioned that the “advanced manufacturing
industry”should be further developed. Some sectors were mentioned as
potentialnew sources for growth, including “medium and high end
consumption”,innovation, “green and low carbon” industry, sharing
economy, modernsupply chain, and human capital service.

    Implementing structural reforms to lift productivity and potential
growth.

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