China’s leadership succession that began last autumn is now complete. Xi Jinping holds the three top positions as general secretary of the Communist Party, chairman of the Central Military Commission and president. Li Keqiang is the new premier.
A year ago, the Bo Xilai scandal was just breaking against the backdrop of a generational leadership succession. There was obviously turmoil and infighting last year but because of the opaque nature of Chinese politics we do not know whether the 2012 jockeying was actually worse than that of previous succession years.
In fact, a year later, the handover to Mr. Xi and Mr. Li has apparently ended up as the most institutionalized transition in the history of the People’s Republic of China. This transfer of power was the first in the Internet and Weibo era, China has never been so important to the world economy and there are many more China pundits and analysts than the last time the country changed leaders. It is possible that the “normal†political machinations in this black box system were simply more exposed and amplified.
Mr. Li’s informal style is welcome, but he is not going to enjoy much of a honeymoon period. Among the many seemingly intractable challenges China faces, the economy, environment and corruption are at the top of the list.
The premier pledged in his first news conference to fight graft and pollution, but no one expects quick solutio! ns. There were several bad air days in Beijing during the legislative session, and 850 delegates expressed their dissatisfaction with the pollution by voting against the lineup for the environmental protection and resources conservation committee of the National People’s Congress.
Now we are waiting for the Xi-Li reform agenda. The Financial Times argues that the premier has set “the reform bar lower“:
The key question is not whether a Chinese leader is a reformer - but rather what kind of reformer he or she is. The contrast between Mr. Li’s program and that of Wen Jiabao, his predecessor, is illuminating. Mr. Li’s agenda, which he outlined at the ed of China’s annual parliament on Sunday, is more limited and more singular in its focus on economics. It also appears to be more concrete and therefore more achievable.
CHINESE REAL ESTATE and the government’s latest attempts to cool the market was discussed in the previous China Insider column. The new rules sparked a surge of buying and a jump in divorces by couples seeking to avoid possible new taxes and purchase restrictions. In February, home prices rose in 62 of 70 cities, putting further pressure on the go! vernment.! Beijing is dancing on a knife’s edge, as it needs to moderate housing price increases and provide more affordable housing. But it cannot drop prices so much that it angers the large and important property owning class and ends up doing even more damage to the economy.
The Shanghai stock market is down 8 percent from its 2013 high in February, and an index of property stocks has lost 17 percent since then. At least two sell-side analysts have turned negative on the prospects for the economy and the equity markets.
On Monday, JPMorgan Chase cut China to underweight.
Perhaps more worrisome, Nomura economists published a report over the weekend in which they argued that China increasingly looked the United States on the eve of the 2008 crash
They do think the country still has time to avoid a systemic financial crisis, as long as the government is not afraid to start tightening now. That will come at a cost in terms of this year’s growth outlook - but growth could still be as high as 8.1 percent in the first half of the year and 7.3 percent in the second half, Mr. Zhang and Ms. Chen estimate. Early tightening could lead to a manageable number of defaults, they think.
The alternative would be a continuation of loose policy and growth of over 8 percent this year, followed by a crash perhaps as early as 2014.
Premier Li has so far said the right things. I am somewhat optimistic that by the Third Plenum of the 18th Party Congress later this year, we will see progress on deeper economic reforms, but the new government may have to move faster than it would like.
