How China's Party Congress is less about 'reform' and more about 'security'

Investors looking for signs of loosening may have been disappointed by China's critical plenum, but all eyes are now on the reshuffle of the Standing Committee unveiled Sunday for future political direction.
How China's Party Congress is less about 'reform' and more about 'security'

As always with the National Congress of the Communist Party of China - the twice-a-decade party congress that dictates economic and political direction for the world's second largest economy - it's the spaces in between the pronouncements that speak loudest.

While the the long-term high-quality growth narrative remains, the message beneath this layer emphasised less “reform” and more "security".

On Sunday (October 16), Chinese President Xi Jinping - who has almost secured a precedent-breaking third term as the country’s highest leader - gave a two-hour speech summarising the party’s work over the past five years and laid out key tasks for the next five-year period.

Whether it was in his 29-page oral version given at the opening session, or the full text of the 72-page report, “modernisation” and “security” were Xi's most frequently used terms. Meanwhile, reference to “reform”, “market” and “economy” were given less prominence compared to the 19th congress five years ago.

Although the speech reaffirmed China’s long-term objective of achieving basic socialist modernisation by 2035 and to become a strong modern socialist country by 2050, no specific GDP target was mentioned unlike the 14th five-year plan in 2020 which aimed to double China’s 2020 per capita GDP between 2021-2035.

Carlos Casanova, UBP

“The shift in tone and the decision to drop the reference to this target suggests to us that they are going to de-emphasise the growth targets, potentially even completely getting rid of the GDP growth target next year to focus on the dual circulation strategy.

"So, we saw an increase in terms like modernisation and security,” said Carlos Casanova, senior economist, Asia at Union Bancaire Privée.

China's dual circulation strategy aims to attach a greater focus on the domestic market.

“We are going to see them prioritising investments into key sectors and reducing the dependency on foreign imports of certain technologies over blindly pursuing the doubling of the GDP target by 2035,” he told AsianInvestor. “So, there was a partial shift, which implies a slightly different attitude in the next five years, but it's broadly consistent otherwise.”

For foreign investors, Casanova thinks it is vital to identify a new generation of investor-friendly sectors such as services, technologies, and energy transition over those with stronger government control.


Another congress sub-text keenly watched by foreign investors were signs of any reopening following China's draconian zero-Covid policy which has seen major urban centres undergo near total lockdown with subsequent impact on the economy.

“The speech was quite generic, (there was) especially no mention of easing Covid policy which the market expected,” said the Hong Kong head of investment of a multinational life insurance company.

“We maintain our view that a major easing of the zero-Covid policy right after the 20th Party Congress is quite unlikely. It will be maintained at least until March 2023,” Nomura economists said in a note on Tuesday.

UBS Chief China Economist Wang Tao shared the same view, saying that “restrictions will be eased significantly after the National People’s Congress (NPC) in March 2023, though there is a risk the current zero-Covid policy may stay unchanged for longer”.

The NPC plenary meeting, known as one of the Two Sessions, is China's annual meeting of its top legislature. 


The other missing part from Xi’s speech was any mention of the housing market.

Previously he had stressed that “housing was for living, not for speculation”. While these words were notably absent from his speech, they were still contained in the full report.

Nomura economists remained of the view that a comprehensive solution to China’s beleaguered property sector might only be introduced after March 2023. Nevertheless, the fact that Xi did not mention housing in his speech was read by investors as a potentially positive signal that the top leadership would extend more support to the sector.

“I don't think that necessarily signifies that they are willing to reignite animal spirits in the sector,” UBP’s Casanova said, adding that they may simply be mindful of not pouring fuel on an already volatile market.


In terms of politics, analysts are closely watching the final lineup of new members of the Standing Committee of the Political Bureau of CPC Central Committee, the top leadership group of the party. It now has seven members including Xi and Premier Li Keqiang. The new members will debut on Sunday (Oct 23).

Aidan Yao, AXA IM

“My overall impression of the political report is that, insofar as long-term goals and directions are concerned, President Xi hit all the right notes for the market. However, saying is one thing, and doing is another,” said Aidan Yao, senior emerging Asia economist of AXA Investment Managers, in a note on Tuesday.

“Delivering the right speech at the 19th Party Congress – which covered many of the same development objectives – did not guarantee market-friendly actions over the past five years,” Yao said.

The creation of a new Standing Committee, a group that will play a critical role in turning the Party’s ambitious development roadmap into reality, will be crucial, he added.

Top positions to watch include the all-important premier, who is traditionally the number two or three member of the group - and whether it will be an ally of Xi or Li Keqiang.

“Investors will focus on whether the successor is open to reform and market-oriented or likely to stick to more traditional thinking and therefore policy continuity,” said Elke Speidel-Walz, chief economist emerging markets at DWS, in a note on October 14.

Elke Speidel-Walz, DWS

“They will have to have some technocrats in key roles to ensure that they can manage this economic transition very well, so that it cannot be purely political,” UBP’s Casanova said.


Although China was due to release third-quarter GDP on Tuesday (October 18), it has postponed the announcement without giving a reason or providing a new release date, fueling concerns about China's slowdown.

“You can imagine that they are at least aware of the situation, and I think they will try to do the right thing to ensure that at least in the first year of the next term that growth is acceptable and then, moving forward, they can tolerate slightly lower GDP growth of around 4% without incurring any issues with social stability,” Casanova said.

Whether Xi could have three allies in the Standing Committee to secure a majority will also be key to watch for potential power shifts within the elite ruling group.

For investors, other key roles outside the Standing Committee include vice premier and economic advisor Liu He’s replacement, who would become the new director of the Central Financial and Economic Affairs Commission Office and carry on the baton of China-US economic dialogue.  

Analysts are also banking on a 50-50 chance that People's Bank of China Governor Yi Gang, and the China Banking and Insurance Regulatory Commission (CBIRC) Chairman Guo Shuqing could leave.

Changes in either role would potentially imply a shift in monetary and regulatory policy, especially given the challenge of restructuring the property sector and the regulatory crackdown on the internet and private education sector, for example, DWS's Speidel-Walz said.

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