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2 Nov 2012

International Economy

China’s Leadership Transition Unlikely to Disrupt Economic Reform (Current Issue No. 2294 Full Ed.)

In the upcoming election of China's fifth generation of leadership, it is quite likely that the Communist Party will name the current Vice President Xi Jinping as the new President, along with Vice Premier Li Keqiang – who is responsible for microeconomic policy and the environment in the current administration – as the new Prime Minister.
KResearch is of the view that China will see a smooth leadership transition without much interruption to economic policies, because Mr. Xi Jinping and Mr. Li Keqiang have worked closely with incumbent Chinese leaders. In addition, it is expected that they will continue the country's 12th Economic and Social Development Plan (2011-2015) that includes key economic policies such as economic structural reform, enhancement of China's consumption and services, as well as advancement in hi-tech industries to add greater value to their industrial output and promote their higher external foreign investment.
Over the near-term, it is expected that incoming Chinese leaders will play an important role in sustaining economic stability and growth even as some September and October economic data began to improve. With adequate monetary and fiscal tools, they will have the leeway to introduce new economic stimuli if the global economy weakens further.

With regard to money and capital markets, close attention should be paid to the policy stance of the new Chinese leadership following US presidential elections on November 6, particularly on foreign exchange rate and economic stimulus policies. It is expected that China might be pressured to strengthen their CNY forex rate if the new US President raises the question of an undervalued CNY as an unfair trade issue. Moreover, the prices of several commodities largely consumed by China, e.g., iron and copper, might rise if the new Chinese leaders announce certain expected economic stimuli. This would, in turn, affect money and capital markets globally, as well.

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International Economy