Xi Jinping's Speech: "Housing Is For Living Rather Than Speculation"

Xi Jinping delivered a three and a half-hour speech at the opening of China’s 19th Party Congress, the once in five years mega-Communist Party gathering (previewed here), to herald a ‘new era’ of power (a term he used 36 times), consolidating his position as perhaps the most influential Chinese leader in decades. While he did lay out  guidelines to develop China in this ‘new era’, bottom line: Heavy in superlatives, light on specifics.

It was the year's most carefully politically-staged global event, best understood by the related trivia gleaned from party officials. The drafting process involves 4,700 individuals, 59 organisations, reports from 25 think tanks, nine research committees and 6 discussion forums, hosted by Xi, to hear suggestions. Xi walked into the Great Hall of the people to marching band music with delegates clapping in time. When highlighted the role of Marxism in 21st century China, he was greeted by lots of applause from delegates.

A room where everyone agrees, and nobody argues. In short: Marxism in action.

Anyway…what about policy, economics and China’s credit bubble?

Obviously, not everything is said explicitly, so we are forced to employ the dark art of interpreting both what’s said and what’s not said. On that note…there has been speculation that Xi will take further action to contain the credit bubble after he’s solidified his own position at the Congress. Xi vowed to continue to work to reduce the debt load and make further capacity cuts. This follows the head of the People's Bank of China, Zhou Xiaochuan’s comment this week that Chinese companies have too much debt. Perhaps the most interesting question is how much significance should be attached to Xi’s comment  "housing is for living rather than speculation''… a soundbite which he reiterated.

Talking of what was not said, there has been some discussion regarding the prominent place given to Jiang Zemin. Some journalists noted that Jiang implemented difficult economic reforms in the 1990s, unlike Xi’s immediate predecessor, who was the architect of the credit boom. Maybe there’s something in it, but it’s very tenuous.

Xi stated that China will “deepen interest rate and exchange rate reform” – which was directionally unhelpful for traders – and will boost the strength of state companies to defend against systemic risks. The Yuan gapped higher as Xi started speaking, but it probably “had to.”

While the Yuan strengthened, the PBoC was undertaking its largest open market operation since 18 September 20177, injecting RMB 270 billion into the financial system. Xi repeated the government’s mantra that (obviously) economic growth is not balanced, or efficient, innovation is poor and the real economy needs to be improved.

There was no reference to economic growth targets, although Xi stated that quality of growth, rather than speed, is the priority. Most commentators are taking this to mean no change to 6.5% annual GDP growth. Maybe... but it’s not certain.

From an overseas perspective, Xi outlined the need to reduce entry barriers for foreign businesses by “large scale”, which made us wonder whether he’s concerned about too little growth going forwards. In a truly bizarre claim, he stated that China wants to “contribute to global ecological security”, and complimented his nation for leading the global debate on climate change. Debating is one thing, we suppose.

Corruption was, unsurprisingly, a major theme in the speech and is the biggest threat for the Communist Party, according to Xi. Having said that, progress has been made "We have taken out tigers, swept flies and hunted down foxes" and the Party will “continue to purify, improve and reform itself.” The Party members were encouraged “resists pleasure seeking, inaction, sloth and problem avoidance.”

In the wake of Brexit and Catalonia, Xi made the veiled threat that “opposing behaviors” must be prevented from “splitting the motherland.'' China would not allow any separation from China’s territory, which obviously includes Taiwan.

The longer-term plan is divided into periods. Between now and 2020, Xi said that China would complete the building of a moderately prosperous society. The realization of socialist modernization will be achieved after 15 years of hard work in 2035, with the “golden era” (our term) of prosperity by 2050. "Socialism with Chinese characteristics is now flying high and proud for all to see." Xi claimed.

Finally, Xi promised that female and ethnic minorities will be elevated in Chinese society, which seemed “prescient” given the observations of Bloomberg’s Pete Martin in the auditorium. “`Twelve women in red coats and four men in black coats fanning out to serve tea on stage -- perfectly synchronized. The four men are serving the leaders in the front row and the 12 women are serving those seated behind them.''