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  October 21st, 2017 | Written by

What’s Going On At China’s Communist Party Congress?

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  • Foreign companies will like Xi's promises of opening up investments—especially in the services sector.
  • Xi positioned China as a defender of the existing international trade system.
  • Xi: China seeks to enter free-trade agreements and build its Belt and Road program.

China’s Communist Party convened its week-long 19th congress last Wednesday. The primary focus will be on choosing party’s internal leadership, and that will have an impact on China’s foreign, economic, and trade policies.

The outcome will probably hold few surprises. President Xi Jinping has worked assiduously over the last several years to move his loyalists into key positions at every level. The new Politburo Standing Committee are the part’s top leaders who will guide Chinese policy going forward.

As the party’s general secretary, Xi delivered a keynote address at the opening known as the political work report.

At the core of the speech, Xi set a new interim goal for China to “basically realize socialist modernization” by 2035. That target falls between China’s already established twin goals of becoming a “moderately well-off society” by 2021, and to “have built a modern socialist country that is strong, prosperous, democratic, culturally advanced, and harmonious” by 2049. The new goal is achievable during Xi’s lifetime, which, noted CSIS China expert Christopher Johnson, “may be meant to hint at his intentions about staying on beyond his next term.”

The report did not repeat the target from the last congress of doubling the size of the economy by 2021, an indication Xi was giving the leadership the leeway to slow the economy and deal with its many structural problems.

That means, according to Melanie Hart director of China policy at the Center for American Progress, that “Xi must execute a tricky balancing act between pushing forward difficult changes that will slow GDP growth and keeping some old growth drivers online long enough to avoid slowing down the economy too much…”

Xi wants to transition his country toward new growth drivers such as high-end manufacturing and services and away from support for heavy industry, infrastructure investment, and resource extraction. “The problem,” noted Johnson, “is that it takes time to build up new industries.”

At the same time Xi made it clear that he has no plans for moving towards liberal capitalism. “The phrase, ‘crossing the river by feeling the stones’—a metaphor for moving from plan to market,” Johnson noted, “was nowhere to be found.”

Xi has clearly moved away from the market-oriented reforms he articulated in 2013, one year into his first term. “As soon as those liberalizations triggered market fluctuations,” noted Hart, “the party pivoted back to top-down control. In response to the large capital flight that decreased yuan and foreign reserve holdings in 2015 and 2016, the People’s Bank of China is now controlling who can take money out of the country.”

Xi is now emphasizing not higher growth but the quality of growth. His priorities toward achieving that goal include industrial restructuring, the decline of overcapacity, and deleveraging; building out the high-tech sectors; reducing pollution and improving environmental protection; building a stronger social safety net, including health care and retirement systems; and reducing inequality.

Foreign companies will like Xi’s promises of opening up investments—especially in the services sector—except in specifically designated sectors. Xi also positioned China as a defender of the existing international trading system and would seek to enter free-trade agreements and build its Belt and Road program.

Left unmentioned was increasing market access for foreign manufacturing and high-tech firms, nor the opening China’s capital account or having China’s currency play a larger international role. “In short,” Johnson concluded, “Xi intends for the country’s international economic engagement to occur increasingly on China’s terms, toward industries and at a pace that fits China’s interests, not necessarily those of China’s trading partners.”

For Hart, the ideal trajectory for the US would be one Beijing rebalances the Chinese economy and avoids a middle-income trap “but does so by reverting to a path of greater openness.” “Decisions made behind the scenes at the 19th Party Congress,” she concluded, “will play a role in determining which of those paths China will take.”