Leadership transition looks like a conservative victory

• Xi Jinping as expected will be the next leader of the Communist Party of China (CPC). The powerful Politburo Standing Committee (PSC) will continue to be dominated by conservatives and notably, the most vocal supporters of political reforms were not promoted. On the surface it looks like a conservative victory.

• The main disagreement is about the need for political reforms. Hence, the economic reforms in China will continue and if anything they will be sped up as focus shifts towards longer-term structural economic reforms to soften the decline in China’s long-term growth.

• We do not expect major macroeconomic stimuli in the wake of the leadership transition, albeit there might be a slightly positive impact on investment demand from the removal of the political uncertainty.

• Major political reforms are unlikely. There appears to be substantial disagreement about the need for political reforms within the CPC and that could be a source of increasing political instability.

• In our view the next five years will turn out to be a transitional phase until the next CPC Congress, when younger and more liberal minded members of the CPC might have another shot at entering the PSC.

Conservatives maintain majority on Standing Committee

This morning it was announced that Xi Jinping - as widely expected - will replace Hu Jintao as leader of the Communist Party of China (CPC). The composition of the powerful Politburo Standing Committee (PSC) was also announced.

The members of the PSC will in addition to Xi Jinping be Li Keqiang (current first vice-premier), Wang Qishan (current vice-premier), Zhang Dejiang (also current vice-premier and temporary CPC leader in Chongqing), Zhang Gaoli (CPC leader in Tianjin), Yu Zhengsheng (CPC leader in Shanghai) and Liu Yunshan (minister of propaganda). The composition of the PSC is as has been talked about in the Hong Kong press in the recent week.

Notably, Li Yuanchau and Wang Yang (CPC leader in Guangdong), who recently have been most vocal in their support for political reforms, were not promoted to the PSC. However, they stay on the Politburo and because of their relatively young age they will have another shot at entering the PSC in connection with the next CPC Congress in 2017, when everybody in the current PSC, except Xi Jinping and Li Keqiang, are expected to retire because of age.