China—abolition of term limits amid reform continuity, mid-term risks
Constitutional amendment to abolish the two-term limit will enable President Xi to remain in power indefinitely. Proponents argue the move towards one-man rule will give Mr Xi more clout to drive deep economic reforms and take on vested interests in inefficient state-owned enterprises and local governments. This month’s National People’s Congress spurred some optimism—while the GDP growth target was set at ‘around 6.5%’, same as in 2017, a pledge to strive for higher growth if possible was omitted. Authorities also dropped the growth target for fixed-asset investment and lowered the fiscal target to 2.6%—the first reduction since 2012. This will encourage local governments to rein in excessive spending and contain debt. Capacity in the coal and steel sectors will be further reduced (by 150m and 30m tonnes respectively) in 2018, despite improving profits.
Yet these are all tweaks to the existing economic system rather than decisive reforms. Indeed, to date Mr Xi has tended to favour state involvement in the economy and remained wary of competitive markets. Continued misallocation of resources would see debt continue to rise and financial strains worsen. The cost of China’s structural problems may well be disappointing economic growth, to the detriment of Australian exporters. The centralisation of power also rolls back China’s institutional credibility and may fan longer term social and political risk.