Chinese President Xi Jinping delivered a three-and-a-half hour speech at the opening of the 19th party congress and the most striking thing in his report is his ideological confidence.
He intends to build China into an advanced and modern socialist power, which is a huge political experiment in the 21st century.
Xi outlined “a new vision of development and developing a modernized economy” in the fifth chapter. And he highlighted six main tasks for his next five-year term, including deepening supply-side structural reform, accelerating innovation, implementing a rural revitalization strategy, promoting coordinated development of the regional economy, speeding up improvement of socialist market economic system and pressing ahead with a new phase of all-around opening up.
By contrast, his predecessor Hu Jintao underscored accelerating improvement of the socialist market economic system and transforming the economic growth model in the 18th party congress. Hu also focused on deepening economic reform, implementing an innovation-oriented growth strategy, promoting economic structural reform, encouraging integration of urban-rural development and lifting the level of opening up.
Obviously, Hu stressed market reform in the report released in the 18th party congress, while Xi emphasized making SOEs bigger and stronger, deepening SOE reform and unswervingly consolidating and developing the public sector. In fact, these echo Xi’s economic policies over past five years.
Nevertheless, investors should not overreact to these comments and get concerned about a fundamental shift.
Xi highlighted letting markets play a decisive role in allocating resources and sticking to the socialist market economy as the orientation of reform. China will also strive to build an effective market system, vibrant micro units and appropriate macro control, Xi said. Some of his words are in fact quite similar to those of Hu at the 18th party congress.
Generally speaking, China won’t reverse the market economy reform after its opening up under paramount leader Deng Xiaoping. But in the meantime, state capital and government intervention may play a bigger role under Xi’s leadership.
What does all this mean to investors?
Since state-owned enterprises are going to play a bigger role, we should seek out SOEs that are likely to step up reform.
We should also watch out if there are any private firms who may bring in SOE partners to ally with Xi’s policy direction. Large property plays and tech giants should be closely monitored for that reason.
This article appeared in the Hong Kong Economic Journal on Oct. 19
Translation by Julie Zhu
[Chinese version 中文版]
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