What an extension of Xi’s reign in China means for investors
HONG KONG — The removal of presidential term limits should guarantee one thing for investors — their China portfolios will be increasingly tied to one man.
Markets initially welcomed China’s plan to change its constitution on Monday, a move that would allow Xi Jinping to rule beyond 2023. Analysts say the political certainty should be largely positive for Chinese assets as it bolsters the president’s ability to drive through policies, such as those related to the deleveraging and anti-pollution campaigns. The absence of checks and balances, though, raises the risk of policy errors.
Mr. Xi’s term since 2013 has been marked by a mostly steady economy but also periods of volatility in the financial markets, typically triggering government intervention. Challenges loom, too, including taming the towering debt pile, the threat of slower economic growth and dealing with the aging population.
Further centralizing power under Mr. Xi is broadly positive from an investor standpoint, said Arthur Kroeber, founding partner at Gavekal Dragonomics in Beijing. But the longer-term risk is that “this lack of accountability, this lack of checks, could lead to a deterioration in the quality of decision-making at the top,” he said.
While the proposal wasn’t entirely surprising, it marks a formal break from the party’s succession practices and tradition of collective leadership. Sunday’s announcement comes a week before the National People’s Congress, when a series of constitutional changes cementing Mr. Xi’s influence are likely to be approved.
The yuan rose 0.4% on Monday as risk appetite strengthened and the greenback fell. The Shanghai Composite Index climbed 1.3%, its sixth straight session of gains.
Here’s what analysts are saying about the move to abolish term limits: • Raymond Yeung and Betty Wang, economists at Australia & New Zealand Banking Group Ltd., wrote in a note:
The proposed amendments to the constitution will ultimately shape all economic policies over the next decade or so, including fiscal and monetary policy. Wage growth, financial stability or the environment will be as important or even more important than annual gross domestic product growth. Downplay the 2018 GDP forecast provided by Premier Li Keqiang at the NPC on March 5 as it will carry a lot less weight as a policy goal. The focus will be on money supply and total social financing as they’ll have a direct bearing on debt control, and hence financial stability. —