China: new term, new reform momentum, same constraints | RiskMap 2022
China: new term, new reform momentum, same constraintsZhixing Zhang | Senior Analyst
Against the backdrop of a leadership transition of the 20th National Congress of the Communist Party of China (CPC) in late 2022, the coming year will be critical for President Xi Jinping ahead of his much-anticipated – and unprecedented – third five-year term.
During ten years in power, Xi has overseen a transformation in China that has defied many of its long-held norms and resistance to reform. Ahead of the next national party congress, Xi will outline additional social-economic rebalancing reforms amid a widening wealth gap and re-emphasise political and regulatory priorities through tightening enforcement to solidify his extended rule. While Xi has been willing to risk bolder reforms at the expense of short-term pain, he will not act without constraints. Challenges to Xi’s extended tenure are remote, but questions remain regarding what trade-offs will be made.
As Xi strengthens his commitment to his domestic agenda in 2022, its ambition and scope will face challenges from intra-Party politicking and competing priorities. Impetus for reforms will be constrained as high-level stability is prioritised during a year of top-level leadership change, which will incentivise leaders to avoid significant market and social disruptions. After two years of extraordinary post-pandemic recovery, the Chinese economy will trend slower in 2022, despite many other global economies making comebacks.
Xi will most likely remain in power for at least another five years, but 2022 will see him balance short-term constraints and long-term goals before the next party congress. These will shape the China he will lead in the next five or 10 years.
- Xi will deepen regulatory scrutiny on businesses across issues such as antitrust, data security, and social responsibility, while pushing tax reforms under the concept of “common prosperity”. Serious operational disruption for private and foreign businesses needs to be avoided.
- He will strengthen his commitment for China’s decarbonisation and continue to phase out energy-intense and high-emissions sectors, while preventing unemployment in those industries.
- Xi has cracked down on public and private corruption among officials and disrupted illicit commercial-political ties, but the intricacies of CPC dynamics need navigating to avoid widespread internal opposition.
- Xi made reducing risks in the financial system a “critical battle” and signalled greater tolerance for more SOE defaults in 2021 but will prize stability overall to maintain confidence in financial markets.
The task is not easy, and the cost of failure can be significant, both for Xi and China. More broadly, Xi and his associates know the risks of doing nothing are as great as the risks of undertaking these bold reforms. For businesses, while the short-term outlook could be confusing, the risks can be mitigated by understanding China’s long-term priorities. Xi’s extended hold on power will portend a continuity of these priorities.