November 6, 2017 / 1:57 AM / 7 months ago

Fitch: China Party Congress Indicates Subtle Shift in Priorities

(The following statement was released by the rating agency) HONG KONG/SINGAPORE, November 05 (Fitch) China's recently concluded 19th Party Congress did not signal major shifts in near-term economic policy priorities, suggesting that the government's appetite for tackling structural challenges associated with its credit- and investment-led economic model will be constrained by continued adherence to high growth targets through 2020, says Fitch Ratings. However, President Xi Jinping did signal a gradual shift in priorities toward the quality, rather than the pace, of growth. Xi succeeded in consolidating his power at the Congress, as reflected in the absence of a clearly identified successor and the appointment of key allies to the seven-member politburo standing committee, China's highest policy-making body. An amendment to the party constitution bearing his name was perhaps of even greater significance, elevating him to a stature and influence shared only among China's most revered leaders. The consolidation of power and more centralised decision-making may speed up difficult supply-side and service-sector reforms. On the latter, Xi mentioned the creation of a negative list for FDI investors in the services sector, and reforms to ensure an equal footing for foreign firms. These changes could enhance the competitiveness of China's services sector, and help reverse the decline in FDI inflows of recent years. Xi's signature policies such as the Belt and Road Initiative and other efforts to increase China's role on the international stage could also gain greater impetus. However, greater concentration of power and more centralised decision-making raise the risk of policy mistakes as China's economy grows in size and complexity. The authorities' intention to preserve the dominance of state-owned enterprises in key strategic sectors and strengthen their presence in new sectors could also dull the role of market forces. The work report delivered by Xi did not specify growth targets for 2021-2049, the period that covers China's Second Centenary Goal of creating "a modern socialist country" that is prosperous, strong, and culturally advanced. The omission is an important departure from previous five-year Congresses, and would be consistent with a pivot away from hard growth targets over the medium term. There was also greater attention, even in the near-term, on addressing social challenges such as poverty alleviation and pollution. Nevertheless, the government's focus on its First Centenary Goal of "building a moderately prosperous society" by 2020 suggests that growth targets are still likely to be prioritised for the next few years. Meeting the associated goal of doubling GDP over 2010-2020 would imply an average growth rate of 6.3% from 2018-2020. This could tempt the authorities to fall back on the old growth engines of credit-fuelled investment and policy stimulus, especially if recent tailwinds from the pick-up in global growth fade over the next two years. Under such a scenario, deleveraging and rebalancing would be postponed at the expense of medium-term stability. The forthcoming Economic Work Conference in December and National People's Congress in March should shed more light on near-term economic priorities and targets. It was notable that Xi's report made no mention of capital-account convertibility, which was a previous focus of government. Rapid opening of the capital account ahead of a further strengthening of the domestic financial system carried risks and precipitated outflow pressures, which the government sought to address through tighter enforcement of capital-account management measures. A more cautious approach to capital-account liberalisation may delay efforts to internationalise the currency, but could enhance macro-stability and preserve external buffers. Contact: Andrew Fennell Director Sovereigns +852 2263 9925 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Stephen Schwartz Senior Director Sovereigns +852 2263 9938 Dan Martin Senior Analyst Fitch Wire +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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