As reported first thing this morning, China's President Xi Jinping outlined his vision for the next five years, ushering in a "new era" (a term he repeated 36 times) of development in China, as the Communist Party’s 19th Congress opened in Beijing on Wednesday. During a 3½-hour long speech, Xi said the internal and external situations facing China were undergoing complicated changes which the party needed to address. Xi started with the opening remark that “the prospects are bright while the challenges are also grave”, before reminding his audience of his achievements over the past five years, which included: poverty reduction, strengthening the one party rule, national security, cutting down pollution and the Belt and Road infrastructure initiatives. One can also throw in "nationalizing China's capital markets" in this list.
Further, as DB's Jim Reid wrote overnight, Xi's anti-graft drive has achieved an “important and irreversible’ momentum and he insisted that China has ‘zero tolerance” on corruption. On the long term, he wants to set the agenda for the country to be “a modern, socialist power” by 2050. On the economy, he says the liberalisation of both interest rate exchanges will continue as "the door China opened will not close but will open wider and wider".
Elsewhere, Xi wants China to make the "quality and efficiency" of growth a priority and deepen supply side reforms as well as insisting on the need to reduce excessive capacity and debt ratios. On housing, he said "houses are for people to live in, not for speculation" and he promised to provide more homes through a variety of different channels.
Before his formal address, Deputy central bank chief Pan also noted that he expects that the Yuan will have a more secure foundation after the congress allowing the central bank to push exchange rate market reforms.
Xi also vowed to step up ideological guidance within the party, strengthen its anti-corruption campaign, retain the government’s grip on Hong Kong and Macau, and oppose any moves towards independence in Taiwan.
Courtesy of SCMP, here are the seven major takaways from Xi's report:
1. A new name for Xi’s political philosophy
Xi said China has formed “socialism with Chinese characteristics for a new era”. The idea will be the guiding principle for the country’s development in the coming years. The slogan was released amid speculation about how Xi’s political thought would be enshrined into the party’s constitution. There are 14 elements behind the concept, with one key idea being that the party should lead in every aspect of life in China.
Xi said the dream of national rejuvenation would only be a fantasy without the leadership of China’s Communist Party. The party should lead in all areas and the authority of the party central leadership should be respected, he said. Cadres should keep in line with the party leadership, while the party should tighten its lead on ideological work. “The party resolutely opposes all attempts that will weaken, distort or reject the leadership of the party and the implementation of socialism,” he said adding that a “principal contradiction” had emerged in Chinese society because of uneven development and the public’s demand for a better life.
2. Becoming a nation with leading, global influence by 2050
Xi laid out some ambitious targets for the next 30 years and more. The first batch should be achieved from 2020 to 2035, Xi said. China will be a top ranked innovative nation by 2035 with a large middle-income population and narrower wealth gap. China’s soft power should be boosted, Xi said. From 2035 to 2050, China should become a nation with pioneering global influence.
3. Keeping up with the “irreversible” momentum of anti-corruption campaign and maintaining the rule by law
China will set up a leading group for comprehensive rule by law. Xi repeatedly talked about the concept during his speech and vowed the party and the government would rule the country under the law and through public oversight. No one would be able to put themselves above the law, he said. He added that China must watch out for any attempt to copy Western-style democracy.
Xi also issued a warning to delegates at the Great Hall of the People on corruption, saying China insists on “zero tolerance” of graft. He said the government has been unswerving in “fighting tigers, destroying flies and hunting down foxes”, referring to the government’s sweeping anti-corruption campaign. He said a national supervision law would be formulated and shuanggui – a party disciplinary practice – would be replaced.
4. Protecting national sovereignty
China’s capability to deal with national security should be boosted as the nation will resolutely protect its sovereignty and interests. Xi said China has made a “historical breakthrough” in national defence and military reform. The navy has protected the nation’s maritime interest and its army rapidly upgraded its weaponry. For the coming years, China will continue pushing for integration between the civilian and the military sector. The People’s Liberation Army should be a “world class” force by 2050. China also opposes separatism under the guise of religion or extremist thought, Xi said.
5. Upholding central government authority over Hong Kong and Macau and opposing Taiwan independence
Xi said the “one country, two systems” principle will not be changed nor distorted in Hong Kong. The central government’s jurisdiction over the two Special Administrative Regions, which also includes Macau, should not be shaken, he said. On Taiwan, Xi said Beijing has properly handled the changing situation facing the island and will continue to resolutely oppose any move to seek independence for Taiwan.
6. Creating a level playing field for foreign businesses
Countering foreign diplomats and business concerns that the government was blocking overseas investment, Xi said China would give equal treatment to all businesses. “The China which has opened up will not close, but will open wider and wider,” he said. China’s GDP has increased from 54 trillion yuan (US$8.2 trillion) five years ago to 80 trillion yuan and the government would aim for growth that is of higher quality and sustainable, he said.
7. Protecting the public interest
Fighting poverty was crucial for China to become a moderately prosperous society, Xi said. All provinces which are under the poverty line should climb above that threshold by 2020. He also pledged to create more jobs for college graduates and migrant workers. Addressing concerns over rising property prices, Xi said houses were for people to live in, not for speculation.
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Not enough? Then here are 6 more key highlights, this time from Goldman's China economist, Yo Song, who writes that "overall the report sent few new signals on either near-term cyclical policy or longer term structural policy, in our view, although there are a few changes/ highlights/ new concepts to note, which we outline below."
- Change in the “principal contradiction facing Chinese society,” which is usually viewed as the guidance on the Party's key area of focus. In the report, Xi said that “the principal contradiction facing Chinese society has evolved to be that between unbalanced and inadequate development, and the people's ever-growing needs for a better life,” a change from previously, “the principal contradiction in our society is still between the ever-growing material and cultural needs of the people, and the backwardness of social production.” (This statement had been in place since 1981.) We view this change in “principal contradiction” as an acknowledgement of the need for more efficient and balanced economic development. Instead of purely focusing on the speed of economic growth, policy makers now also emphasize higher productivity, higher profitability, more innovation and efficient distribution, as well balanced development between urban and rural areas, and among different regions of the country. This is also consistent with the tone from policy makers in recent years (e.g., the “new norm” from Xi, and “focusing on not just the quantity but also the quality of development” in the Central Economic Working Conference).
- Xi’s thoughts on socialism with Chinese characteristics for a new era. The report came up with thoughts on socialism with Chinese characteristics for a new era, which should be effectively a summary of Xi’s thoughts and will likely be incorporated into the Party Constitution during the Congress. There are 14 fundamental principles, which have been mentioned previously in different situations, with the first being “ensuring Party leadership over all work.” On economic areas, Xi mentioned “continuing to comprehensively deepen reform and “adopting a new vision for development,” which reiterated Xi’s five development concepts (i.e., innovation, coordination, green development, opening and sharing), and reemphasized letting the market play a decisive role in resource allocation. Environmental issues are listed as a separate principle under “ensuring harmony between human and nature,” and the report mentioned plans to “implement the most rigorous ecological and environmental protection system.”
- A new two-stage development plan. In the report, Xi emphasized importance of the period up to 2020 as "the decisive stage in building a moderately prosperous society," and said that "all requirements on building a moderately prosperous society from the 16th, 17th, 18th Party Congress must be followed." Presumably, this would include the goal of doubling income by 2020 established in the 18th Party Congress, though it was not explicitly mentioned here. Then Xi proposed a two-stage development plan from 2020 to the middle of the 21st century, with the first stage from 2020–2035 to see that socialist modernization is basically realized, and the second stage from 2035 to the middle of the 21st century to develop China into a great modern socialist country. However, there are no quantitative details in the plan currently.
- Characterizing the economy as turning from a high-growth phase to a high-quality development stage. The report also mentioned building a modern economic system. Major measures for this include deepening “supply side” reforms (e.g., reiterating key structural tasks such as over-capacity cuts and de-leveraging), strengthening innovation, promoting SOE reforms with mixed ownership, developing a twin policy management framework with both monetary policy and macro-prudential tools, “significantly” loosening market access to domestic service sectors and protecting foreign enterprises’ legal rights in China.
- Other highlights included a proposal to establish a central leading working group on the comprehensive rule of law, although the exact form of the group has not yet been specified. In social areas, Xi highlighted a policy intention to widen the coverage of education, reduce income gaps between low- and high-income groups, strengthen social protection (e.g., retirement, unemployment), reduce poverty and deepen ongoing medical service reforms. He also reiterated that, “houses are for living, not for speculation” and mentioned plans to “speed up the development of a housing system with supply from multi entities, protection from multi channels and combination of rental and sale.”
- The next publication will be the list of Central Committee members on Oct 24, followed by revealing of appointments to the Politburo Standing Committee on Oct 25.
The above was summarized best by UBS' chief economist, Paul Donovan, in just one sentence: "China's economic challenge is that the successful model of the last twenty years will not work in the next twenty years."
And while we previously gave a full preview of what to expect from the 19th Congress, here is a 2 minute summary for those pressed for time: