The Chinese Communist Party will begin its National Congress on Sunday, an event due to run October 16-22. It's the 20th installment of a once-in-five-years gathering that will settle the country's leadership for the next half-decade, as well as make any changes to the party's constitution.
Investors will want to watch its progress. Many cities and provinces have tightened their health nets since the Golden Week holiday that began on October 1. But with the leadership transition running through March next year, it's unlikely we will see a big relaxation of the CCP's zero-Covid campaign until that point. Likewise, it is unlikely we will see major stimulus directed at the beleaguered property industry until March.
You'll see rosier predictions that a lot will change after this October event. I doubt it, not right away. I agree with Nomura and T.S. Lombard that major policy recalibrations are unlikely until the full roster of government changes are made. Think of the lull in White House activity between the November election of a U.S. president and their January accession to office.
The event starting on Sunday in the Great Hall of the People in Beijing will kick off with a big fat speech from Xi Jinping, who is first and foremost General Secretary of the CCP, and as a result China's president. He will report to the 2,296 delegates representing the party on the progress from the previous five years.
Watch for new buzzwords like the now-little-mentioned "common prosperity" nod to Maoism, or Xi's earlier assertion that "houses are for living in, not for speculation," which presaged the current crackdown on real-estate developer debt. And listen also for any indication of how Xi plans to push ahead with the "dual circulation" initiative that is China's drive toward self-sufficiency in industries such as semiconductors. It's a push that I explained on Monday was dealt a severe setback by new rules from the U.S. Commerce Department restricting shipments of high-end chips and chipmaking equipment to China.
Currently, the zero-Covid push is essentially a drive by Communist officials to keep Xi happy, and make sure they stay in jobs. What we might begin to hear is a hint that the zero-Covid policies may be eased in 2023.
"Those hoping for a short-term positive policy pivot at the Congress will be disappointed," T.S. Lombard chief China economist Rory Green writes in a note to clients. His base case is that Covid restrictions will ease slowly starting in Q2 2023, since the Chinese Center for Disease Control and Prevention has made it clear the health-care system can't cope with a major Covid outbreak at current vaccination rates. "As long as an exit path remains unclear, China activity and assets will continue to disappoint."
The National Congress will include a series of elections: for a new Central Committee of the party, (currently with 205 members); which in turn selects a new Politburo (China's cabinet, now 25 members), new Politburo Standing Committee (7 cabinet chiefs), the new General Secretary or leader of the party, and the new Chairman of the Central Military Commission, or commander-in-chief. Xi holds both those last two roles.
We'll know the results likely on October 23, a day after the National Congress ends. Of course, the real horse trading will have been done behind the scenes ahead of the event.
The Central Committee will meet again in February, when it will decide a host of top government posts (as opposed to the party positions being decided now). That February meeting selects the top civil servant in China, the Premier, as well as vice premiers, state councilors, and the membership of China's two Congressional entities: the National People's Congress and the Chinese People's Political Consultative Conference.
Those two bodies, the NPC and CPPCC, hold the "Two Sessions" when they meet, normally in the first two weeks of March. So it won't be until the March 2023 meeting that the whole leadership transition will be complete. It's also at that March event that the Premier typically sets China's economic growth target for the year.
The origins of the National Congress date back to the very founding of the Chinese Communist Party, in Shanghai in July 1921. Mao Zedong was among the 13 members who gathered in Shanghai and, after the police broke up the meeting, on a tourist boat rental on South Lake, southwest of the city.
In Xi, we have China's strongest leader since Mao. At the last National Congress in 2017, "Xi Jinping Thought" was written into the Constitution of the CCP, elevating it alongside the Marxist-Leninist treatise that is Mao Zedong Thought. The only other leader to experience such prominence is Deng Xiaoping, the architect of China's opening up under his Deng Xiaoping Theory of "socialism with Chinese characteristics."
It's a given that Xi will get reelected now, and we can look for signs of him positioning himself for a fourth term - he has essentially eliminated all opposition but equally leaves himself with no "heirs." Since Xi took power a decade ago, when elected general secretary and commander-in-chief in 2012, these changes will only consolidate his control of the political system. But as we see with Russian President Vladimir Putin's actions over Ukraine, the prospect of poor policy decisions given the lack of checks-and-balances on Xi's power only grows.
International and local analysts will be waiting on every word about Taiwan. Although the CCP pretends it's having a whole load of voting going on at this Congress, we only have to look across the Taiwan Strait to see a fully functioning Chinese democracy - something that irks Beijing, which essentially maintains Chinese people can't handle one-person-one-vote complexity for leadership. The Taiwan government originally claimed for many years that it remains the last elected government of ALL of China, and therefore should rightfully run a country that the CCP seized by revolution.
While Xi changed the rules so he can stay for an unlimited number of terms, current Premier Li Keqiang cannot extend to a third term after a decade in the post. Wang Yang, the most-liberal member of the Politburo, is a frontrunner for the post, as is Vice Premier Hu Chunhua, both men former CCP bosses of Guangdong, the most-populous and most-prosperous Chinese province.
The Chinese Communist Party essentially promotes its mandate primarily as stemming from stability, and economic growth. So this National Congress comes at a very difficult time, when China is way off the target set in March of growth at "around 5.5%," with Q2 growth at just 0.4%. There's discontent, although not much public protest, about how strict, sudden and arbitrary lockdown policies can be.
For the first time since 1990, the rest of Asia is growing faster than China, as I noted late last month. China faces both long-term demographic challenges from an ageing population, shrinking workforce and very low birth rate as well as short-term disruption from anti-Covid measures and steps by multinationals to diversify production away from China.
"Common prosperity" became a Maoist rallying cry for Xi in 2021, when the economy was running better. He embarked on a full-scale assault on the private sector, taking Big Tech down multiple pegs, attacking the "disorderly expansion of capital," and reminding every Chinese entrepreneur that the ultimate power in China lies with the Communist Party, and him. Xi also suggested the need to redistribute wealth.
Xi eased off the common-prosperity rhetoric as the Chinese economy ground to a halt. He let technocrats take greater control over economic policy, while he focused instead on the Covid battle and social policies. Since Xi is now so closely associated with the zero-Covid push, we may have to look to other Communist officials if they begin to hint at a relaxation of the rules. But we can watch the outcome of the leadership changes and any new catchphrases coming out of Xi's speech for hints as to where China will head in the next five years.