And so, the 20th Party Congress ended, and the new leadership took up the reins of power and stepped out on the new long march into the future. As expected, Mr. Xi stayed as head of the party for a third term, unprecedented since the death of Mao in 1976, and the team he appointed indicated a clean sweep for his perspective, rather than a balance between his views and those of what might be called the Dengist reform group. This was in many ways a preferable outcome for all, in that a balance would have resulted in some degree of gridlock as the two sides argued it out as to what to do to resolve the issues that China is currently facing. With the clean sweep, the pendulum of history will speed it up and what is going to happen, will happen faster and in a more clear and resolute way.
Since the meeting ended, there have so far been no major policy statements to balance off the perception of the end of the Dengist era and the confirmation of the Xi era part 3, this time minus checks and balances. Instead, Mr. Xi’s first move was to take his new team, the standing committee of the Politburo, on a trip, really a pilgrimage, to Yan’an, the town in northwest China, where the communists regrouped in the 1930s having survived the efforts of the Nationalist Chinese government to exterminate them. No message could have been clearer. It has always been our view that these guys are smart and they understand the implications of what they’re doing. It is therefore reasonable to assume that the consequences of the creation of this perception are acceptable to them.
There are various constituencies to which the 20th Congress documents and speeches could be addressed—the party members numbering 100 million, the ordinary people, let’s say 1 billion, the middle class and the wealthy numbering maybe 200 million depending on your definition, the markets, and foreign investors. It would appear that the group that is most specifically singled out by this messaging are the party membership, particularly the older, more senior party members in leadership positions. These people are old enough in most cases for Yan’an to resonate and carry a message of stability and red continuity which presumably makes them feel comfortable. For the ordinary people of China, the absence of chaos is always the priority, and the soporifically convoluted political phrasing and the visit to Yan’an again provides a nostalgic sense of smooth-sailing. But this was not what the markets, the middle class, the wealthy, private enterprise or foreign investors in general wanted to see. The Hang Seng Index in Hong Kong ended the week down around 7%, and Shanghai about 5% thanks to concerted efforts, it is presumed, by the national team to stem the outflow. Many people in many areas of the economy will be in the process of making decisions based upon the clear direction that has been announced for the next five years and beyond, and the leadership knows that and accepts it, quite clearly. As we said before the congress, their priorities are central (party) control, common prosperity and self-reliance.
So the pendulum swings on. There was a deep sense of a line being drawn across the page of history. The era of so-called reform and opening instituted by Mr. Deng in 1978 is over and the strange departure of one participant from the 20th Congress final session certainly symbolized that very clearly. Whether he was not feeling well, or there was something else going on is largely beside the point. Perception is reality and the perception fitted the narrative like a glove. End of era.
Now we wait for the declaration of specific policies, addressing economic issues, pandemic issues and foreign affairs issues, to clarify precisely how this new political era will be rolled out.
And with that, we wish you a good weekend.