What to expect from China’s new leaders

New leadership on China’s central committee could mean reforms to the country’s banking sector and state-owned enterprises (SOEs) over the next five years, says a Scotiabank analysis.

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Details on newly elected leaders of the Communist Party of China’s central committee are outlined in a Scotiabank economics report by Tuuli McCully, head of Asia-Pacific economics at Scotiabank. Xi Jinping continues as general secretary of the committee.

Considering the new leadership, McCully outlines the potential focus of Chinese policy over the next five years.

For example, she expects economic reforms that focus on strengthening the banking system.

“We believe that increasing the depth of the financial sector is a vital aspect of near-term structural changes, as it would promote stronger capital flows into China and lessen pressure on the capital account that is currently curbed by tighter capital controls,” she says.

What won’t be on the agenda: how to meet GDP growth targets.

Read: China’s growth buoyed by retail spending, exports

That’s because it’s likely “policymakers will place less emphasis on achieving short-term real GDP growth targets and more on financial stability, given elevated risks stemming from continued rapid credit growth and China’s high corporate debt burden,” she says.

McCully also expects progress on China’s goal of having markets play a decisive role in resource allocation.

For example, “supply-side reforms will likely continue with further reductions in industrial overcapacity,” she forecasts.

Further, she expects reformation of SOEs, which dominate China’s economy and tend to be less efficient than private-sector businesses.

Still, “SOEs will continue to play a prominent role in the Chinese economy over the coming years,” says McCully, because the Communist Party of China, under President Xi, “will prioritize strong central leadership that reaches all aspects of the Chinese society.”

Read the full report.

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