Market Thinking

making sense of the narrative

All eyes should be on the 20th Party Congress

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The upcoming 20th Party Congree of the CCP in October is a key event for Global Investors, even if not many people are talking about it right now – and those that are tend to be focusing on the exaggerated prospect that Xi may not be reselected. This latter point usually reflects the perennial western talking points about how the economy is on the brink of disaster, how this or that sector is failing and how there is ‘massive’ social unrest. Sorry, but it is not being panglossian to suggest that these perma bears on China have not only been saying variations on this for over a decade now (and been consistently wrong), but also to highlight that there are, naturally, different political agendas at work. The CCP may be a single party, but it doesn’t mean there isn’t any politics going on! Believing an information source largely on the basis that ‘they are Chinese’ is the same as accepting that a Republican will tell you the US economy is in terrible trouble, while a Democrat will try and deny recession by redefining it. Just like anywhere, there are factions and agendas. It is always useful to ask the questions “Why am I being told this? And why now?”

We will look at the economics in a separate post, but in terms of the actual mechanics of Xi’s re-election, we would highlight this interesting post – ‘What if China’s leaders were on Linked-in”? from the excellent We are no experts on the inner workings of the CCP, but these people seem better informed than most in our opinion, which is why we are sharing their insights.

The analysis follows on from other works identifying how Xi has consolidated power and influence since 2007 and particularly since the start of his second term and is highlighting how Xi’s connections with the other key leaders on the PolitBuro Standing committee –  Li Keqiang, Wang Huning, and Li Zhanshu – have intensified. The graphic copied below is for Li Keqiang, but the others are similar.

This key message is how from the original position of two very different networks, they now heavily overlap.

Last week, Marco-Polo updated its analysis in a post ahead of the CCP meeting in October, which it describes as The most consequential political event of the year (and we would agree). Here they argue that, not only has Xi spent the last five years consolidating his power through appointment of close allies and removal of challengers, but that this year alone he has made 161 important personnel changes (caveat – all numbers are big in China) and that, while mostly they are conforming to rules around age the net result is that around 90% of the new Politburo will be in Xi’s trusted network, delivering him a super-majority and virtually guaranteeing him a third term.

One other important point to note in the article is the promotion of technocrats into positions of influence, in line with Xi’s increasing emphasis on areas high tech areas like aerospace, which give important hints as to the likely shift in focus for the Chinese economy.

To Conclude. The mechanics of the election system and the way Xi has consolidated his position over the last five years suggests that the prospects of Xi failing to secure a third term are being significantly over-stated. We would suggest that time is better spent on thinking about what he will do when rather than if he gets in. Something we will consider in more detail in the next post on China -spoiler alert, it will mean much less focus on exports!

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