When the world’s second largest economy sits down to reshuffle its leadership and map out an economic plan for the next five years it is a big deal.
- China’s Communist Party congress starts and third quarter GDP released
- Australia’s employment/unemployment data should point to further strength
- Resource companies’ September quarter production results dropped while AGM season rolls on
It is an especially big deal in Australia given China’s role as our most important trading partner.
Just what the 19th National Congress of the Communist Party of China (NCCPC) will deliver is very much open to question and its impact is unlikely to felt for some time.
What is the congress?
The NCCPC gathers every five years in Beijing’s Great Hall of the People with a very select guest list of around 2,300 party elite from the provinces, bureaucracy, military and industry.
It kicks off with a set-piece, televised speech from President Xi Jinping on Wednesday.
It then largely disappears behind closed doors for a week when a reshuffled politburo pops up and details of the next five-year economic plan — number 13 in this case — are unveiled.
The headline grabber is always the ins-and-outs of the all powerful Politburo Standing Committee.
Around half the seven-member politburo needs to be replaced as they head towards the tacit retirement age, or fall from political favour.
About the only certainties are President Xi will be there to serve a second five-year term and the replacements will also be men, given gender equality is no big deal in the upper reaches of the Communist Party.
Avid China watchers will then assess an array of largely incomprehensible party semiotics to see whether President Xi is more or less powerful than before. The betting is he will emerge more powerful.
What will we learn?
President’s Xi speech will detail the latest group-think on China’s economy, what its ambitions are and how they will be achieved by 2020 and beyond.
By the end of the week the constitution will be re-jigged with new ideological and policy positions to hit the targets.
The plans generally entail some big concepts such as the “One Belt One Road” policy, supply-side reform (closing down inefficient industry) and the more recent “Made in China 2025” strategy.
Given those three policies are all closely linked to President Xi there is unlikely to be much change in economic policy in the near term.
Ultimately, China’s goal is to take a much larger chunk of the global economy by whatever means are at hand.
Is greater liberalisation and openness on the cards?
Not likely, if the Made in China 2025 plan is any guide.
For all President’s Xi championing of globalisation at Davos Economic Forum earlier this year, China still sits at 59th out of the 62 countries on the OECD’s ranking in on economic openness.
Made in China 2025 aims to splash out somewhere in the order $US300 billion of government money to make China not only self-sufficient, but a global leader in 10 cherry-picked, high-tech industries.
Areas such as robotics, autonomous and electric cars, artificial intelligence, biotech and aviation will be subsidised, handed low-interest loans, rent-free land and tax breaks to become world beaters.
It has been studied by the likes of the American and European Chambers of Commerce and several other think-tanks and as China-watcher Anne Stevenson-Yang says, “the consensus is that it represents an industrial policy of unprecedented ambition.”
“It also is aggressively protectionist and wholly inconsistent with China’s most basic national treatment commitments in its World Trade Organisation agreement,” Ms Stevenson-Yang wrote recently in her J Cap Research commentary.
An American Chamber of Commerce survey of its members in China earlier this year, found more than 80 per cent felt less welcome in China, while more than 60 per cent have little or no confidence the country will open its markets much in the next three years.
“The plan is a manifesto that flies in the face of foreign confidence that China, whether under the guidance of a dominant strongman like Xi Jinping or a fragile consensus of competing factions, will reform and reduce State involvement in the economy,” Ms Stevenson-Yang said.
“It details the ways in which government remains deeply involved in directing capital to political targets and diligently substituting China-made products for imports.”
Cutting debt and culling inefficient industry still a focus
ANZ’s chief China economist Raymond Yeung says supply-side structural reforms will still be a key strategy coming out of the congress.
Mr Xi has been clear about his focus on shifting China’s economy from a credit-intensive, property-led growth model to something a bit more sustainable.
“Initiatives like capacity reduction, deleveraging and property destocking will be ongoing through the second half of the 13th Five Year Plan,” Mr Yeung said.
“The goal is to develop China into a ‘New Economy’ that focuses on innovation and technology.”
Where this congress may differ from earlier gatherings is there may not be the same level of pump-priming, or fiscal spending, according to Mr Yeung.
“President Xi does not favour using conventional fiscal and monetary policy as he previously stated at the G20 meeting in Hangzhou last year.
“In fact, fiscal spending has slowed since the 18th NCCPC,” Mr Yeung argued.
If that trend continues, it may not be great news for Australia’s big miners.
Chinese growth rebounding
While the congress scurries behind closed doors on the second day of the conference a deluge of economic data, including third quarter GDP, will be dropped.
Manufacturing and trade data point to fairly robust domestic and external demand.
The consensus pick is 6.8 per cent GDP growth annualised, but it could be higher. It certainly won’t be a shocker coming out as it does in the middle of the congress.
Monthly fixed asset investment, industrial production and retail sales data will also be released on Thursday.
They should be roughly in line with August’s results, which were pretty solid.
The highlight of the week on the domestic front will be Thursday’s jobs data. They should be a strong set of numbers.
NAB’s David de Garis says based on the bank’s forward-looking business survey he is picking 25,000 new jobs, well ahead of the consensus choice of 15,000.
“Such growth would arithmetically be sufficient to push the unemployment rate lower, except that it may well come from a lift in workforce participation,” Mr de Garis said.
Solid quarter for resources exporters
The September quarter is generally pretty good for the big miners with little or no adverse weather to get in the way of their endeavours.
The quarter certainly finished on a flourish looking at China’s latest trade figures.
Iron ore had a big September, with China’s customs office reporting imports jumped 16 per cent from August to hit a record monthly high 103 million tonnes. That is up more than 10 per cent on last year.
Copper imports were even more impressive, up more than 26 per cent over the month, continuing the rebound of the past six months.
BHP (Wednesday) may be a bit behind schedule after maintenance work at its Port Hedland facility, while Rio Tinto is still battling to make its guidance of 330 million tonnes for the year.
The big oil and gas producers, Woodside, Oil Search, Santos and Origin Energy all trot out quarterly results and all should be buoyed by stronger prices.
ASX looking for a strong start
A solid end to the week overseas points to a strong start for the ASX.
Markets on Friday’s close:
- ASX SPI 200 futures +0.2pc at 5,806, ASX 200 (Friday’s close) +0.3pc at 5,814
- AUD: 78.88 US cents, 66.71 euro cents, 59.36 British pence, 88.22 Japanese yen, $NZ1.10
- US: Dow Jones +0.1pc at 22,871, S&P500 +0.1pc at 2,553 NASDAQ +0.2pc at 6,606
- Europe: FTSE -0.3pc at 7,535 DAX +0.1pc at 12,992 Eurostoxx50 flat at 3,605
- Commodities: Brent oil +1.5pc at $US57.17/barrel, Gold +0.9pc at $US1,304/ounce, Iron ore (Nymex) +1.3pc at $US59.83
Key US indices all reclaimed new highs, as did the global MSCI index.
Wall Street pushed higher on stronger than expected retail sales.
US inflation jumped too, although largely on the back of a temporary spike in fuel prices caused by Hurricanes Irma and Harvey interrupting refining operations in the South.
The ASX had a welcome bounce last week, up 1.8 per cent — outpacing the fairly flat results in the US and Europe.
By Stephen Letts