Investment - Articles - Investment update on change in China


 The plenary session of the 18th National Congress of the Communist Party of China has concluded with the announcement of the new party leaders and the members of the party's Military Committee.

 As expected, Mr Xi Jinping has been selected as the new General Secretary of the party. In a change to the protocol established during the previous two transitions, however, Mr Xi Jinping has also been elected Chairman of the party's Military Committee immediately. Mr Deng Xiaoping and Mr Jiang Zemin both remained in that position for several years after leaving the Standing Committee. Other members of the Standing Committee of the Communist Party are largely as expected, with Mr Li Keqiang likely to be the next Premier.

 The imminence of the Congress has been a negative factor for investors for several months. Looking ahead, we expect markets to respond positively now that the leadership transition has taken place. Mr Xi Jinping's rapid consolidation of power should give the new leadership more of a free hand than was the case in the past, and it is our belief that this will be conducive for reforms.

 In his speech, Mr Xi Jinping emphasised the importance of reform to the survival of the party and for the continued economic prosperity of the country. He also talked about the need to improve the overall wellbeing of Chinese citizens, echoing the goal of doubling average household incomes in the next 10 years which was set out by President Hu Jintao earlier in the month.

 This further supports our view that the target for economic growth in China will be at a sustainable level, and that domestic consumption will form an increasing share of economic activity in Asia's largest economy. If wealth is reallocated, as we expect, from state-owned enterprises to small and medium sized companies and households as part of a reform programme, we believe the Chinese economy could well enter a new structural growth phase.

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