Macro Insights Weekly: China’s 20th Congress and the looming challenges
- 4.5-5% average annual growth is needed to growth into a “medium-level developed country” by 2035
- Emphasis was over developing industrial tech, including aerospace and quantum computing
- President Xi’s attachment to common prosperity and wealth redistribution was reinforced strongly
- The critique is that unchecked capitalism results in widening wealth gap and high cost of living
- We see a rather difficult road ahead for China’s ambitious goals
Commentary: China’s 20th Congress and the challenges ahead
The 20th National Congress of the Chinese Communist Party has concluded, with the leadership of Xi Jinping consolidated. President Xi’s opening remarks at the Congress, which set the agenda for the next five years, were full of ambitious goals.
First, the president vowed to grow China into a “medium-level developed country” by 2035, which, we reckon would require the economy to growth by 4.5-5% a year on average for the next decade and a half.
Second, there was substantial emphasis provided over developing industrial technology, in areas such as aerospace, quantum computing, and satellite navigation. It followed from here the critical role to be played by world class scientists and engineers.
Third, President Xi’s attachment to common prosperity and wealth redistribution was reinforced emphatically. Sustained anti-corruption drive and breaking up of power concentration in various parts of the government were emphasized as well.
The key critique implicit in the messages of the 20th Congress is that unchecked capitalism results in ever-widening wealth gap and high cost of living. In order to check this, China will grow with a keen focus on income redistribution. Animal spirits will have to be restrained, under these circumstances.
- “Dual circulation” remains the party’s key economic policy.
- No major changes to economic policy would be forthcoming.
- Zero-Covid policy was defended; we don’t expect a quick and meaningful pivot away from the policy of sporadic lockdowns and overall mobility stringency in the near term.
- Given the tone of the messages, we expect higher property and inheritance taxes. Redistribution to cover poor families, job support, and wider social safety net are on the agenda, in our reading.
- About one-third of the new Politburo are technocrats, reflecting Xi’s focus on science and technology innovation.
- The Belt and Road Initiative did not appear in the foreign policy section as it did previously, indicating Beijing may have lowered its expectations for the program in the face of rising risks and losses.
China has numerous external and internal challenges to deal with as it pursues this ambitious agenda. The distress in the property market is deep and the authorities’ efforts to push through debt workout are likely to be painful for bank and non-bank lenders, property developers, local governments, and property owners. Ongoing regulatory crackdown and numerous restrictions from the US will make progress in frontier technology full of friction. Between the pandemic and record droughts, it will be onerous to bring back momentum in domestic activities. All this while geopolitical environment is beset with conflict risks; China’s road ahead is a bumpy one, we reckon.
Taimur Baig and Nathan Chow
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