Making China great again 

From

Bob Baur

Principal Global Investors’ Chief Global Economist, Bob Baur, Ph.D., weighs in on the 19th National Congress of the Communist Party of China.

President Xi Jinping’s opening session speech

“In his three-and-a-half-hour, 32,000-word speech to about 2,300 attendees at the opening session of the 19th National Congress of the Communist Party of China, President Xi called upon China to become ‘a great power in the world and a modern socialist country by 2050.’ He warned that China should not copy any foreign political system, but should fortify the Party, which governs and ‘leads everything.’

“The speech was a significant change in emphasis; it was not a series of numerical goals for production, income, jobs or education for the next five years. Previously the conflict facing China has been the growing material and cultural needs of a rapidly expanding population versus a low level of production. So, the imperative of the Party was to grow: expand capacity, increase output of everything, and do it as fast as possible.”

Quality over quantity

“Xi recognized that China had mostly overcome that first conflict and was ready to take on another. He noted that “the principal contradiction facing Chinese society today is unbalanced and inadequate development and the people’s ever-growing need for a better life.

“In other words, the quantity of material goods has been achieved; now, the focus is to be on the quality of life. From high-speed growth to high quality development, rebalancing the economy away from heavy industry and toward satisfying consumers’ wants and desires, upgrading production, cleaning up the environment, creating and using all technology, and fostering innovation. This was a marked change in emphasis from the past and will show up in all future Party writings and directives.”

China’s 30-year plan

“By 2035, China should become an economic, innovative, and creative technology power with an expanding middle class and much-improved air and environmental quality. By 2050, Xi said that China will become a military power with “national strength and international influence.”

Anti-corruption campaign

“In Xi’s address, he touted his anti-corruption campaign as important and necessary to keep confidence in the Communist Party and to rule efficiently over a country of 1.4 billion people. To that end, over 1.5 million people had been punished over the last five years according to the Minister of Supervision at the Central Commission for Discipline Inspection.”

Bob Baur’s observations

“First, the stature and power of the Communist Party has been reaffirmed. The purpose of the government is to carry out the edicts of the Party. Second, economic reform seems to have taken a back seat; the role of the market in allocating resources or in the economy has become a lower priority. The Party will exercise more control, even over large private-sector companies. Further, there were no numerical growth targets mentioned, which suggests a recognition that economic growth will be slower than in the past.

“Further, there were no numerical growth targets mentioned, which suggests a recognition that economic growth will be slower than in the past.

“In addition, it’s quite possible that Xi intends to serve a third term, even though he would be older than the customary retirement age in 2022. Xi is clearly the strongest unrivalled Party leader since at least Deng Xiaoping or perhaps even Mao Zedong, the founder of modern China. Finally, the focus moving away from market reforms does not bode well for the goal of an innovative, creative society. Innovation comes from entrepreneurs, who function most effectively in free markets and in countries with strong legal institutions.”

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