Xi Jinping, China’s most powerful leader since Mao Zedong, is preparing to use the upcoming National People’s Congress to launch a “forceful” government reshuffle, appointing his most trusted retainers to oversee the financial, tech and other sectors monitor.
The country’s annual parliamentary session, which begins on Sunday, will replace Premier Li Keqiang, the prime minister, and his team of technocrats who are credited with guiding the economy through the turmoil of the past five years. Important portfolios such as the financial sector can also be restructured.
Xi vowed at a meeting on Tuesday that the party was planning “far-reaching” changes that would include financial sector reform, increased control of the technology and science sectors, and — perhaps most threatening to the economy — increased party involvement in “non-public companies.” “.
The changes come at a sensitive time for China’s economy, which has been paralyzed over the past year by Xi’s draconian zero-Covid strategy and regulatory measures targeting the tech and real estate sectors that have hurt business sentiment. Gross domestic product grew by just 3 percent in 2022, well below the official target of 5.5 percent.
While growth is expected to rebound this year — manufacturing activity grew at its fastest monthly pace in a decade last month — the new team needs to convince skeptical investors that China is serious about reopening for business and is ready to cope with long-standing structural headwinds, including recovery, public debt, declining population and flagging productivity.
“The top priority of the congress will be both to set a growth trajectory in the short term and to try to convince domestic and foreign investors that there is a path to long-term sustainable growth,” said Victor Shih, professor of Chinese politics and economy from the University of California, San Diego.
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In October, Xi performed a clean purge of the seven-member Politburo Standing Committee and stacked the Chinese Communist Party’s top decision-making body at the five-year party congress with loyalists.
Xi was also confirmed as party secretary and military chief for a third five-year term, a precedent set in 2018 when the NPC amended the constitution to remove a two-term limit. This month, parliament will complete the formalities by reappointing Xi as president.
It is expected to reflect the reshuffle of the CCP’s leadership at the top echelons of government, which will feature a team of new faces drawn heavily from Xi’s past.
Chinese leader Li Qiang is expected to promote Li Qiang, the former Shanghai Party leader with whom Xi worked as governor of Zhejiang Province in the 2000s, to premier and head of China’s State Council, or cabinet.
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The outgoing team is led by business czar Liu He, a Harvard-educated economist who is widely credited with launching a financial “de-risking” campaign in 2017 to curb shadow banking and debt accumulation and avert a financial crisis.
The government, which warned against flooding the economy with stimulants, managed to slow – if not stop – the expansion of China’s debt, which has risen to 273 percent of GDP from 150 percent before the global financial crisis, according to Gavekal Dragonomics research group.
In contrast, officials like He Lifeng, a Xi protege set to replace Liu, have spent most of their careers as local politicians. He may be more inclined to meet immediate policy needs at the expense of conservative long-term monetary policy, analysts said.
“Of course we know that the central bank has always been a government body obedient to the overall direction of the Communist Party. That’s intentional,” Shih said. “But it’s been run by career technocrats for decades.
“By appointing local politicians . . . this could result in short-term policy goals being placed far ahead of medium-term policy goals.”
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In a further move that will consolidate control over policy-making, the party has been discussing a proposal to set up a supercommittee to oversee the central bank and other financial regulators, two people familiar with the matter said.
If accepted by the NPC, the new entity would be a more powerful, party-led version of an existing body, the Financial Stability and Development Committee, overseen by the State Council, people said.
While the existing committee only coordinates financial regulation between bodies, the new committee would be empowered to make quick decisions on cross-sector risks such as the collapse of Evergrande, the country’s most heavily indebted real estate developer, the people said.
The front-runners to lead the new body are He and Ding Xuexiang, Xi’s powerful chief of staff. Meanwhile, Lu Zhiyuan, the party leader of the coastal city of Qingdao, is one of the top candidates for the office of finance minister.
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Whatever doubts market watchers may have about the new Xi government, it will benefit in the near term from an economic recovery sparked by the end of zero-Covid, analysts said.
The NPC is expected to set a full-year GDP growth target of 5 to 5.5 percent, said UBS economist Tao Wang, adding that the new government could also try to boost growth by channeling more funds into the real estate sector or stimulate consumption.
“I also see benefits in a policy that might be a little more supportive than expected,” Wang said.
However, economists pointed to the challenge of sustaining higher growth beyond the post-Covid rebound, particularly if China is to meet its goal of becoming a “moderately prosperous” society by 2035.
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This would require compound annual growth of 3.5 percent through 2035 to reach the $20,000 a year per capita income threshold, said Robin Xing, chief China economist at Morgan Stanley.
“It’s more about the next debate beyond this one-off boost,” Xing said.
Achieving sustainable long-term growth would require daunting decisions on issues such as B. how to increase consumption as a share of activity in an economy that still invests too much as a percentage of GDP and how to solve the growing debt of local governments, analysts said.
“We’ll probably have good growth this year and everyone will be happy,” said Michael Pettis, finance professor at Peking University. “But it’s only temporary.”
Xi’s new team – a closer look
Li Qiang, who oversaw Shanghai’s lockdown as Communist Party chief last year, is expected to replace Li Keqiang as prime minister, China’s second-highest official. Li Qiang worked with Xi when he was governor of Zhejiang province in the 2000s, a post he took up himself in 2013.
He Lifeng, a Xi protégé from the presidential era in Fujian province, is set to replace Liu He as vice premier. He could also be appointed powerful party secretary of the People’s Bank of China, the first time a vice premier has held the role since the 1990s.
Lu Zhiyuanthe party leader of the coastal city of Qingdao and a former high-ranking official in Xi’s home province of Shaanxi, is among the top candidates for the post of finance minister.
Zhu HexinChairman of state-owned conglomerate Citic Group to replace Yi Gang, governor of the People’s Bank of China.
Yi humanthe current head of the securities regulator, is expected to replace the bank regulator Guo Shuqing.
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