07 MAR


The Chinese National People’s Congress is expected to revise its constitution to abolish term limits for the president. This opens the door for Xi Jinping to continue after his term expires in 2023. He was declared “core” leader in 2016, his “thought” was enshrined in the constitution in 2017 and his power has reached a new climax in 2018. The impact of a more centralised China could well be felt in the handling of the value of the Chinese Yuan and potential trade retaliation measures.

The mountains are high and the emperor is far away. This century-old proverb illustrates that the central government has always met obstacles in imposing its policies across the country. Consolidation of power under Xi Jinping may lead to accelerated reform in the short run. The more centralised China becomes, the more top-down, local discretion and initiative are likely to fade. Focusing on domestic challenges, the National People’s Congress is expected to validate the top 3 economic targets: reduced financial risk, reduced poverty and the huge urban-rural income divide, reduced pollution. No doubt that “zero tolerance for corruption by inaction” will incentivise local bureaucrats to comply.

Xi Jinping favours decisions made by the ‘visible hand’ rather than the ‘invisible hand’. A shift back towards a quasi-indefinite one-man rule in China is antagonistic to Western democracies. Only time will tell if the competition between the two systems – one democratic, the other Communist capitalism – will allow an autocratic China to become a friend or only a partner.

Financial markets are eagerly awaiting answers to the following questions: First, how long will China tolerate a stronger Yuan? In the context of somewhat less cyclical growth, the appreciation of the Yuan over the past twelve months represents a headwind for Chinese exports. Second, what kind of retaliatory measures will China take in response to US steel and aluminium tariffs? There is only one certainty: Xi Jinping will decide.