Analysis: China poised to shake up economic leadership as reformers bow

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By Kevin Yao

BEIJING (Reuters) – China’s ruling Communist Party will set the stage next month for the biggest overhaul of its economic leadership in a decade, with a generation of reform-minded policymakers expected to step down amid deteriorating growth prospects.

Beijing’s five-year reshuffle kicks off at the party congress beginning Oct. 16, where President Xi Jinping is poised to break the precedent and secure a third term of leadership.

While top officials will remain in office until the annual parliament meeting, usually in March, the party conclave is expected to provide clues about who will be lining up for top positions and identify who will succeed Li Keqiang, who will step down in March after two terms as prime minister, a position charged with managing the world’s No. 2 economy.

It is widely believed that Li has seen his role diminish under Xi, but has nevertheless been a source of comfort to investors who view him as a moderate voice amid Xi’s shift to state-led economic management.

“Li’s power is limited, but at least he was appointed at the same time as Xi. His successor could be even weaker,” said a policy insider who spoke on condition of anonymity given the sensitivity of the case.

“Under the existing political structure, whoever takes over (as prime minister) will not make a big difference,” the person said.

In addition to Li, 70-year-old economic tsar Liu He and 66-year-old banking supervisor Guo Shuqing are also likely to step down early next year, policy sources said, and Xi, 69, is expected to maintain the retirement age for leaders. other than himself.

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The retirement age for top leaders is conventionally 68 or two five-year terms.

Li, 67, has a PhD in economics from elite Peking University and is fluent in English.

Liu, a deputy prime minister and Harvard-trained economist, is a close confidant of Xi and his point man in trade talks with Washington. He is seen as the mastermind behind past reforms, including painful attempts to reduce excess factory capacity and financial risk.

LIMITED ROOM

In contrast, China’s next economic team may be dominated by domestically groomed Xi loyalists who lack the current team’s international knowledge, academic brilliance and independent spirit, policy insiders and analysts say.

Two frontrunners to replace Li are Wang Yang, 67, chairman of the Chinese People’s Political Consultative Conference, an advisory body, and Deputy Prime Minister Hu Chunhua, 59.

While both Wang and Hu served as leaders of Guangdong province’s economic powerhouse and are seen as pragmatic, reform-minded officials, their ability to make big changes may be limited, policy insiders said.

Other prime minister opportunities include Chongqing party chief Chen Miner and his Shanghai counterpart Li Qiang, they said. Both are considered Xi loyalists.

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He Lifeng, who heads the National Development and Reform Commission, the powerful state planning agency, is a leading candidate to replace Liu, policy insiders said. An economist and bureaucrat with close ties to Xi. He worked in Fujian Province for 25 years.

In late 2013, a newly elevated Xi unveiled sweeping reform plans, but since then, market liberalization has lost momentum.

“The 20th Party Congress has plenty of room to choose a new economics team,” said Bert Hofman, director of the East Asian Institute at the Lee Kuan Yew School of Public Policy in Singapore.

“If that team is a technocratic team pursuing a pragmatic agenda to achieve Xi’s broad goals, we could see much of the unfinished reform agenda from the 2013 decisions resurfacing, and hopefully we’ll see growth pick up again “, said Hofman, former member of the country. Director for China at the World Bank.

“Conversely, if the new team reflects a more statistical approach, growth could drag on.”

ASSEMBLY CHALLENGES

The new economics team will inherit unprecedented challenges, from finding a way out of what many see as an increasingly unsustainable zero-COVID policy to a real estate crisis threatening financial stability and rising tensions with Washington.

A chaotic repression of tech companies and private education, which shattered investor and corporate confidence, prompted Li and Liu to voice their support for the so-called platform economy.

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“Given the increasing internal and external challenges, the Chinese government’s attention seems to have been diverted from its reform agenda,” said Joerg Wuttke, president of the EU Chamber of Commerce in China. The chamber plans to release a paper with nearly 1,000 recommendations for improving conditions for European companies in China ahead of the congress.

“The Chamber believes that the best way for China to realize its economic potential is to return to the path of reform and opening up,” he said.

With little sign that China will significantly reduce zero-COVID anytime soon, some analysts expect the economy to grow by just 3% this year, which would be the slowest since 1976, excluding the 2.2% expansion during the first COVID-19. hit in 2020.

Li, who has fought an uphill battle to balance the economy while making limited changes, seems eager to leave his mark on public memory as a reformer.

Visiting Shenzhen, a village turned megacity and the symbolic birthplace of reforms that unleashed four decades of breakneck growth, Li said that trend is irreversible.

“China’s reform and opening up will continue. The Yellow River and the Yangtze River will not flow backwards,” he said at the Yantian port in Shenzhen last month.

A video of the social media comments was later removed.

(Reporting by Kevin Yao; editing by Tony Munroe and Sam Holmes)