China Leadership: Nobody Has A Clue

By John Richardson

THE blog has spent a great deal of time talking to lots of people, and reading everything it can get its hands on, concerning China’s leadership handover and has reached one overwhelming conclusion: Nobody has a clue.

Xi_Jinping_VOA.jpgThe comforting, easy analysis is that the once-in-a-decade handover will be handled smoothly – and that, therefore, in the “best of all possible worlds”. China’s economic boom will continue.

But this one-dimensional scenario would represent dangerous complacency for chemicals companies, similar to that which governed the planning process in late 2011, when the consensus view was that chemicals demand growth would bounce-back in 2012.

One scenario that has to be built into the planning process is that, despite the re-appearance of president-in-waiting Xi Jinping (pictured on the right), there is an intense political struggle still going on in China.

Some politicians may, for instance, be using the dispute over the ownership of islands with Japan to shore up their base, as they don’t want to cede too-much power to Xi Jinping.

The problem could centre on the reported failure of the early August meeting of party leaders at the seaside resort of Beidaihe to resolve deep differences over who should hold power after the handover.

There is a strong possibility that the handover, which is supposed to take place in mid-October, will be delayed, creating a longer period of uncertainty over China’s political and therefore economic direction.

“The current political malaise is likely to carry on for another 6-7 months, maintaining uncertainty among investors,” said an Australian resources consultant.

This uncertainty has been one of the factors why, while bank lending picked up in August, corporate borrowing remains weak.

A political struggle appears to be taking place between the reformers and those who have, allegedly, done remarkably well out of the current investment-drive growth model. “Vested interests” might still be fighting hard against the reformers.

An in-house CIA article in 1975, entitled “The Art of China Watching”, contained the sub-heading, “Does Logic Help?”.

Since then, as The Economist points out, China has undergone a dramatic social and economic transformation.

But, underlining our point that nobody really has a clue, the magazine adds that politics “remains an intricate and frustrating puzzle to be tackled with crude techniques and unreliable sources”.

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