The CPC…corporate consequences?
The 17th National Congress, which has resulted in several personnel changes at the very top of China’s Government, will inevitably have significant ramifications on the business landscape in China. The main headline has been that General Secretary Hu Jintao has strengthened his position slightly, but fell far short of obtaining the dominance that many expected him to secure at this point. Along the same lines, many are pointing out that ultimate power is no longer being held by a single individual as several coalitions now compete to influence how the country is led.
On the business front, much remains unclear, but here are some key issues being discussed:
First, with Hu in a stronger position, following the retirement of several Jiang loyalists from the top posts, it could be predicted that he is in a stronger position to take bold measures on the exchange rate–letting it appreciate faster. Evidence that this might occur is backed up by the fact that the central bank governor, Zhou Xiaochuan was granted a place in the central committee for the upcoming five years, despite initial rumors to the contrary.
On the other hand, this Congress has demonstrated that coalitions (i.e. Jiang Zenmin’s Shanghai clique, versus Hu’s clique) are becoming more powerful, and that the government is being ruled more by coalitions. This would indicate that bold moves on monetary policy will be more difficult to implement in the coming term.
As such, it is difficult to analyze with any degree of certainty what will happen with the Yuan’s exchange rate.
Either way, it seems that inflation will likely remain a major issue. With China’s deficit at 1% of GDP, and the economy continuing to grow, it seems likely that fiscal spending will increase over the coming years. The government is awash with cash, and Hu has pledged to help the rural sector in the name of harmonious development. His major initiative to date was the abolishment of the income tax on peasants. Although this was a major milestone for China, he will need to do much more in order to truly deliver on his commitment to China’s peasants and he has indicated that he will (healthcare, social security, and education spending are other areas spending would likely increase). With upward pressure globally on commodities, promised environmental regulation pushing up the costs of business and government cash flooding into the countryside, one would have to be concerned that inflation will continue to rise.
As a final note, one government relations expert that I spoke with noted that all the recent talk about coalition politics in the upper reaches of the Chinese government is focusing too intently on the power play between the Shanghai clique and the Hu clique, but is neglecting the Taizi Dang which refers to the children of former communist bigwigs who now hold commanding positions. This group includes Liu Qisan, Bo Xilai, and Xi Jinpin. Xi Jinpin is actually in the ideal position of straddling that group and the Shanghai clique. In one sense, this puts him in a very strong position to muscle his way to the top, despite apparently not being favored by Hu himself.
