China: Party Congress winding down - BBH

Analysts from Brown Brother Harriman, explained what is going on at the 19th Party Congress in China that is about to end. Also, they remained about PBOC Governor Zhou warning about the financial system. 

Key Quotes: 

“The 19th Party Congress in China is winding down.”

“There seems to be a consensus that the 19th Party Congress was about President Xi consolidating power.  This seems to have largely been accomplished before the Congress. Institutional rivals, like the Communist Youth League, have largely been neutered. Xi had already emerged as the third great leader after Mao and Deng Xiaoping. Former Australian Prime Minister Rudd, in an op-ed piece in the Financial Times yesterday suggested that Xi has now eclipsed Deng.”    

“Tomorrow the top leaders of the Politburo and its Standing Committee will be announced. The important element here is that given the opaqueness of Chinese politics, insiders and outsiders are looking for clues into Xi's successor. The successor is picked at the start of the second five-year term. Some suspect that Xi is not interested in picking a successor now, either because he wants a third term or to be strategically flexible.”

“PBOC Governor Zhou has his indication to step down shortly. There is some speculation of his successor. Three candidates have been suggested who were confirmed on the Central Committee:  Jiang Chaoliang, who is the Party head from the Hubei province, and Securities Regulatory Commission Chair Liu Shiyu, and Banking Regulatory Commission Chair Guo Shuqing. PBOC Deputy Governor Yi Gang was named as an alternate member of the Central Committee, which some suggest is a sign he will succeed Zhou.”

“Zhou has often pressed for financial liberalization. While it may be idiosyncratic, we suspect that institutionally, the PBOC is aligned with the forces of change and reform, as opposed to say the Ministry of Commerce, who may be more allied with the force of order.”

“Last week, Zhou warned of a Minsky moment, by which he meant a financial crisis.  Given that he was talking at the 19th Party Congress, it seems clear he was talking about China. It seemed to be reminding his listeners of the importance of reforming the financial system. Many foreign observers tend to focus on the aggregate debt levels and the excess capacity in numerous industries. Most of China's debt is on corporate balance sheets, or local government's special purpose investment vehicles.  The central government has little outstanding debt.”