Countdown

And so we now have a date for the start of the Communist Party’s 20th Congress, the once in five years event that fixes the leadership and the policies for the coming years. This year has been particularly interesting because the tradition of the past two decades, as established by Mr. Deng, of two terms and all change, is according to all reports, going to be sidelined. Mr. Xi has done his two terms as the party leader, and is expected to be named as the top guy for another term. The consequences of this we will only fully understand once it has become a fact, and we are now around six weeks off seeing the result of moving on from Mr. D’s answer to the problem of succession within a non-transparent and non-participatory structure. Just how the economy, and society as a whole, will react is for us useless to ponder, but time marches on and it’s not too long before we will see. To take the contrarian view, it could well be that the third term will be balanced in some way by the rest of the leadership lineup and the policies laid out. Our guess would be that there will be some grounds for hope provided to the loyal opposition that pragmatism will be taken into account in terms of economic and COVID policies. But the fact is that many of the challenges that the system currently faces are deeply embedded and fundamental to its nature, and making some of the changes some experts are saying are required to remove pressure and resolve problems will be extremely difficult. Those in Command are almost certainly of a mind to maintain the status quo by whatever means available rather than pursue a reformist agenda. The immediate problems of property market slump, local government financial pressure, and economic slowdown, require a shift in responsibility and asset control. But the initial response that we are seeing over the past few days is a ramp-up of stimulus packages, which Those in Command have obviously been loathe to employ up to this point, because of the obvious threat that adding to the debt piles could destabilizes the whole pagoda. But it would appear that they have no choice now.

In other news, the United States has ordered nVidea and AMD to stop selling chips to China, which just emphasizes again that decoupling is real and that a key weak spot is semiconductors. On the other side of the ledger, the US and China authorities appear to have reached agreement on the auditing of Chinese companies listed in the United States, and Alibaba is up for an audit next month. The question is whether or not the US auditors obtain sufficient access to the books in China to make them comfortable about the claims that Alibaba makes in its financial returns. It’s just another waiting game, and we should all be getting used to that by now.

Have a great weekend.