Xi has achieved a more effective central leadership and a clear-cut decision-making process. Ambitious policy initiatives such as financial de-risking and cutting industrial capacities were carried out forcefully and rapidly. But at the same time, as local officials become wary of potential wrongdoings, the centralization process has also caused inertia across local governments, resulting in potential risks in policy implementation.
Beijing continues to reform the state-owned enterprises (SOEs) in its own way in order to make them more efficient and powerful. It is expected that a new three-year plan for SOE reform will be released soon, as Vice Premier Liu He chaired an SOE reform meeting in November 2019 and announced to develop an action plan for the next three years.
Luo Huining is the most senior person appointed to HKLO since 1990 and he will have a lot discretions. He will take a more proactive approach in Hong Kong affairs and will be a decision-maker instead of a messenger.
In the last ten days of 2019, a total of 49 prefectural-ranking officials from local governments were transferred across China. Among them, 17 became prefecture-level city party secretaries and 22 became mayors or prefecture-level district heads. These latest transfers are special because they broke a political tradition on cadre transfer.
As the new year is just around the corner, we decided to present something a little bit light in today’s note – China’s top 10 political scandals of 2019. While not all of them are market movers, these cases do demonstrate the scope, depth, and implications of Beijing’s anti-corruption campaign, which shapes policy outcomes at both local and central levels.
The new pattern makes provincial vice party secretary position much more important for officials seeking top provincial jobs, and an important bellwether to identify emerging, future leaders. It also means that when officials were appointed provincial vice party secretaries or governors, they were already expected to become governors and eventually provincial party secretaries.
Traditional political factions, which used to be important in understanding China’s political dynamics, have been weakened by the anti-corruption campaign and lost their prominence, and other groups are on the rise. Among them, a couple groups of technocrats stand out. They are the rocket scientists and bankers. Some of them are expected to join the 25-people Politburo in the upcoming party congress and become the country’s most powerful leaders.
According to CCDI and local commissions for discipline inspection (CDIs) websites, a total of 98 bankers, financiers, and financial regulators have been investigated for corruption in 2019. These included high-profile names such as Liu Shiyu, former securities regulator chairman and Hu Huaibang, former chairman of China Development Bank – the largest policy bank in China. More people are taken down at the provincial level.
We think this time Hong Kong’s economy could get worse than that in 1998 but through a longer period. First, retail sales now account for a greater share of HK GDP today (17%) than 20 years ago (15%), and seems more vulnerable to this domestic instability. When the conflicts escalated in August retails sales shrank by 22.9% yoy, more than the biggest single-month drop in 1998 (21.5%). Hotel occupancy rate also fell to 63% in September, the lowest level on record, as tourists’ visits dropped by 35%. Second, the external environment is unfavorable given the unresolved US-China trade tensions, meaning that it will be difficult for Hong Kong exports to recover, especially if the protests erode Hong Kong’s connection with mainland China.
The Fourth Plenum of the Chinese Communist Party’s 19th Central Committee convened and concluded at the end of October 2019. This plenum gave more indications that President Xi will continue to serve after 2022. Facing a slowing economy and an unpredictable White House, the Party’s leaders pledged to modernize state governance and to carry forward Socialism with Chinese characteristics as China’s ruling ideology. In short, the Party is going to prove that it can reconcile governance dilemmas that other political systems cannot.
