CBBC Insights | China’s 19th CPC National Congress: What UK companies can expect in the “New Era”
The First Plenum of 19th Party Congress closed in Beijing this week. It opened Xi Jinping’s second term as president and transitions China into a ‘New Era’.
The National Congress has also lined-up China’s new leaders for the next five years. The newly elected Standing Committee is unlikely to change President Xi’s business agenda and the opportunities for UK companies.
We heard many of the usual, positive-sounding messages about deepening reform and opening up. In this article, we’ll have a quick look at:
– Highlights of President Xi’s report and what can be expected for China
– What it means for UK business
Prepared by CBBC’s Michael Wang, Stakeholder Relations Director, and Ingrid Ge, Economist.
The CPC National Congress in 100 words
The Communist Party of China (CPC) has about 90 million members, roughly 6.8% of the population of whom 2,300 sit on the National Congress. According to the Constitution of the CPC, the supreme leadership of the Party is this Congress, and the 204-member Central Committee elected by it. From the Central Committee, a 25-member Politburo is selected and at the very top sits the (currently) 7-member Standing Committee of the Politburo.
Throughout its five-year cycle, the National Congress normally meets seven times, called plenums. As this is the start of a new cycle, the issues are dominated by succession and leadership.
Highlights of President Xi’s report and what can be expected for China
President Xi’s report summarised the achievements of the last five years and set out the direction of travel for next five years. We’ll take a look at some important points.
Principal contradiction of Chinese society
This is the contradiction between “unbalanced and inadequate development and the people’s ever-growing needs for a better life”. While China has made enormous progress over the last 40 years and the standard of living has dramatically increased, there is more to do to ensure this growth is balanced across society, and that future development meets the changing needs of China’s citizens.
- Expect more considered resource allocation, including policy and financial support, across the country. More resources are expected to be allocated to inland and rural areas to address the regional disparities. A good example is that 5 of the 7 newly announced FTZs in late 2016 are located in mid (Henan, Hubei) or west China (Chongqing, Sichuan, Shanxi).
“Quality and efficiency first” in economic development
In short – it is time to stop chasing GDP growth figures and move towards growth that focuses on the quality of development and its impact on society.
Supply-side structural reform, a buzzword of recent years which largely means improving the efficiency of SOEs and reducing reliance on debt, will continue to encourage the upgrading of China’s manufacturing alongside the ‘Made in China 2025’ initiative.
- Expect cities, regions, trade fairs, zones and businesses to focus more on quality and innovation in specific sectors rather than broader manufacturing. More effort will be made to adjust the structure of economy and ensure sustainable growth rather than sticking to fixed targets as before.
Ease of market access for foreign investors
President Xi stated that “China will only become more and more open”. Both inward and outward investment, and the Belt and Road Initiative are key to further linking the China market with the world. “All businesses registered in China will be treated equally”, he said.
China will “implement the system of pre-establishment national treatment plus a negative list across the board”. More autonomy will be given to Free Trade Zones (FTZ) and more effort will be made to explore the establishment of Free Trade Ports.
- Expect continued opening up and reform in a methodical and prudent way
Debt Issues
It is likely that after this plenum the Chinese government will have the opportunity to focus more specifically on its larger economic issues. After a stimulus package in 2009, a surge of bank loans in 2016 and cheap credit over the last number of years, China’s debt to GDP amounts to 258 per cent of the economy. This figure is not extraordinary compared to some other nations but the rate of increase is not considered healthy.
- Expect the splurge of cheap credit to be tightened over next few years as SOEs, private businesses and local governments are forced to become more efficient and productive with their resources. Murkier issues of ‘shadow banking’ will also be addressed.
What it means for UK business
President Xi repeatedly emphasised that China’s foreign policy will not change and the protection of the interests of foreign investors will continue to be important.
For British business, opportunities in the following areas may be worth attention:
- Trade in goods – Mid and high end consumption was raised as one of the growth points at the 19th Party Congress. Chinese consumers are becoming more sophisticated and more selective in what they purchase and favour imported products more than ever. Sales of imported consumer goods hit USD200 billion (150 billion GBP) in 2016.
- Trade in services – President Xi called for the further opening up of services as the proportion of China’s trade in services accounts for about 18% of total foreign trade, lower than the global average. It is hoped that this will bring opportunities for British businesses in finance, insurance, design, marketing, legal services, accounting and auditing etc.
- Advanced manufacturing – China’s manufacturing will continue to move up the value chain under the “Made in China 2025” initiative. This should bring more partnership and investment opportunities for UK expertise in manufacturing and related sectors.
- Belt and Road Initiative and outbound investment – The Belt and Road Initiative will remain a central pillar of China’s strategy. The UK can be China’s best commercial partner in exploring third markets by sharing its specialist expertise in financial services for example, and its regional experience, knowledge and connections.
Conclusion
President Xi has mapped out a prosperous future for China over next 30 years, to build China into a “strong and powerful” nation standing firmly on the world stage by promising “the nation’s economic and technological strength will have increased significantly, ranking among leading countries in innovation” by 2035, and “becoming a global leader in terms of composite national strength and international influence”.
CBBC’s message to UK companies does not change. This is the time when UK businesses have their greatest competitive advantage in China – as the services and products in which the UK excels fit well into China’s ‘new era’.