China’s president Xi Jinping will most likely remain at his post for more than ten years, but because he is not strong enough to implement some substantial reforms, it means that growth will remain high in the coming years.
”In the short term , it is positive for China, with the status quo. But in the longer term it is not positive for China, which would need to be reformed in order to reduce the rate of growth… I think a disappointment waiting,” said Sean Yokota, SEB’s chefstrateg for Asia, at a press briefing on Friday.
He added that a China that is not reform, nor is good for the world economy in the longer term.
”Our main scenario now is that Xi is becoming more like (Russian president Vladimir) Putin and will stay in his post longer than ten years,” he said.
He noted that a chinese leadership that stay longer in his post than 10 years does not mean something big shift historically, but that it is still interpreted as a step back to the leadership is institutionalized.
An example of that Xi Jinping is not as powerful as many thought, according to chefstrategen, that the president has failed on its promise to reduce corruption; another is that China’s debt has increased under Xi Jinping.
According to Sean Yokota is financial stability a high priority for the chinese leadership right now, and not only the central bank, the PBOC, focusing on skuggbankerna.
He also highlighted that the foreign direct investment, FDI, has slowly begun to turn around when China moves up the value chain. At the same time as chinese companies are buying up foreign companies, reducing the need for foreign companies to build large factories and plants in China, which affects the flow of investment.
Chefstrategen also touched upon that the yuan has strengthened in recent times and this is the part of the authorities ‘ strategy. China to open up markets to stabilize their currency, one way is to open up the bond markets, which today have a very low share of foreign ownership.
He is not especially concerned about the increased geopolitical tensions in the region, as north korea missiltest, because China is acting in the background, and most advocate the unchanged situation in the region. Possibly would a domestic power struggle in north Korea to be able to change the conditions.
Risks to monitor are, according to Sean Yokota, among other things, if China’s CPI would rise above 3%, since this would force the PBOC to tighten monetary policy which in turn would make the debt more vulnerable. Himself, he thinks that the CPI peaks at 3% in september-October, but if it is not getting the raises he a varningsflagga.
Another risk for China’s financial stability is if the oil would fall below the 40 dollar per barrel.
Asienstrategen took also up to the situation in Malaysia with a corrupt leadership, concerned about him, and he pointed to the fact that foreign investors have started to leave the country’s bond market. Tensions between different ethnic groups would be able to spread to other countries in the region and create instability.
Questions and comments always welcome in the newsroom[at]tradingportalen.com