China’s upcoming Communist Party Congress is about politics more than policy, but investors are still trying to read the tea leaves anyway.
The once-every-five-years meeting is set to begin Wednesday, and it’s expected to mark a further power consolidation for President Xi Jinping. But, it may also provide hints about what his administration will do as the world’s second-largest economy grapples with persistent concerns from three decades of breakneck growth.
On the surface, the gathering will likely “highlight the Party’s long-term goals and key tasks for the next five years, which may stress the need to balance economic growth, structural reforms, income distribution and financial stability,” Nomura’s economists wrote in a recent report.
Beyond that, observers are watching for signs on how China will continue to deal with longstanding problems such as excessive corporate debt in state-owned enterprises, industrial supply over-capacity, concerns about a property bubble and environmental pollution. Results of official efforts to tackle the problems have been mixed as Beijing balances economic and social needs.
Some are hoping that a more powerful Xi will be able to push through structural and economic reforms more thoroughly, but there’s also the concern that the government could revert to old habits.
“Traditionally economic activity, especially investment and credit growth, have tended to accelerate in the year after a Party Congress. We hope the Chinese political leadership will act differently this time,” Emil Wolter, emerging markets portfolio manager at asset management group Comgest, wrote in a note.
That is, Wolter said there was a danger that Beijing would embark on a course of “lower quality” high-percentage GDP growth driven by government forces, rather than “better quality, self-sustained” lower GDP growth.
