beijingwalker
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MAR 12, 2018 @ 11:30 AM 6,269 T
In China, 'Xi Forever' May Not Be Forever, After All
It's official, Xi Forever is now the law in China. So the story goes, he is the second coming of Chairman Mao, and will be the ruler of the world's No. 2 economy until his dying day. Democracy is dead. As if China was heading in that direction on a high-speed train.
What's happened with the rules change?
In the near-term, nothing has happened because Xi Jinping was a shoo-in for a second five-year term anyway. That second term began this weekend. The government scrapped term-limits, meaning he can run again in 2023. His premier, the quiet Li Keqiang, stays on for another term, helping set the economic agenda. China has a novel concept of mandatory age limits to hold power. That age limit is 68 years old. Xi would be 69 his last year in office.
There is a rumor among China investors that recently retired corruption czar Wang Qishan will be Xi's new Veep. Wang had to retire because he was over the 68-year-old age limit. He is 69. Scrapping term limits means you scrap the age limit because there is no sense having an age limit if there is no term limit. Qishan can be brought on board and continue his anti-corruption push, helping Xi centralize power in Beijing, and weaken the provincial governments who have had a penchant for oversupply and shadow banking practices. These practices have been two negatives for China for at least a decade.
"Does Xi even need a third term? He really doesn't," says Brendan Ahern, CIO of KraneShares, a China-focused exchange-traded fund company based in New York. "There is a lot of emphasis on Xi Forever, but he already has the people in place that can keep pursuing his agenda and economic reforms without him."
China's constitutional changes were passed by the National People's Congress on March 11. Only two delegates voted against the change and three abstained, with 2,964 votes in favor of abolishing term limits. The country has had a two five-year term policy since the 1990s.
Xi Forever is not Castro's Cuba.
There is an unstoppable culture of capitalism and entrepreneurship in China. Private tech companies have driven much of the new wealth in China. Tencent has over 43,000 well paid, well-educated employees with a net profit margin of 27% as of the third quarter last year. Alibaba has around 50,000 employees today and growing globally.
Billionaire tech founders Jack Ma and Robin Li are revered by the government for what they've accomplished. Warren Buffet and hedge fund billionaire Ray Dalio are like rock stars in China, a country full of retail investors who like putting money to work in the stock market as much as they like gambling in Macao and Las Vegas. Mainland equity markets are being institutionalized. The MSCI A Shares inclusion in the massive MSCI Emerging Markets Index is a recognition of that progress. China is still the largest closed-door economy in the world, but it is opening up at its own pace and many U.S. investment banks will reap the benefits of that as China lowers the entry barriers for foreign banks in the mainland.
One of the bigger immediate concerns in China is Washington's push on intellectual property rights. Most of this impacts the privately held telecos like ZTE and Huawei. Huawei has proven to be a serious competitor to Cisco Systems. They are fast developing their own 5G protocols, and so the U.S. considers them a strategic rival in this space.
"I don't see any near-term problems for China with extending term limits," says Andy Rothman, an investment strategist with Matthews Asia in San Francisco. "If he stays on forever it sets a negative precedent because it tells us that the government can change the rules of the game whenever it wants," he says, noting certain legal issues held dear by investors, like property rights. What if those were scrapped someday? Thing is, investors would be hard-pressed to find anyone who thinks something like that is in the cards.
For now, it is all systems go for China. Xi is in his second term, as everyone expected. China is not a Western democracy. It probably never will be, in most of our lifetimes. The next five years of Xi are what matters for investors, and everyone expects Xi to honor his word of slowly opening the economy, within Beijing's limits, and fighting graft. That's where Wang might come in, a man too old to hold office until Sunday's rules change.
"I think Xi is done in five years," says Ahern. "I don't have a crystal ball. But the vision and agenda is already there. It's not necessary for him to stay in power."
https://www.forbes.com/sites/kenrap...er-may-not-be-forever-after-all/#69d32ac7e83d
In China, 'Xi Forever' May Not Be Forever, After All
It's official, Xi Forever is now the law in China. So the story goes, he is the second coming of Chairman Mao, and will be the ruler of the world's No. 2 economy until his dying day. Democracy is dead. As if China was heading in that direction on a high-speed train.
What's happened with the rules change?
In the near-term, nothing has happened because Xi Jinping was a shoo-in for a second five-year term anyway. That second term began this weekend. The government scrapped term-limits, meaning he can run again in 2023. His premier, the quiet Li Keqiang, stays on for another term, helping set the economic agenda. China has a novel concept of mandatory age limits to hold power. That age limit is 68 years old. Xi would be 69 his last year in office.
There is a rumor among China investors that recently retired corruption czar Wang Qishan will be Xi's new Veep. Wang had to retire because he was over the 68-year-old age limit. He is 69. Scrapping term limits means you scrap the age limit because there is no sense having an age limit if there is no term limit. Qishan can be brought on board and continue his anti-corruption push, helping Xi centralize power in Beijing, and weaken the provincial governments who have had a penchant for oversupply and shadow banking practices. These practices have been two negatives for China for at least a decade.
"Does Xi even need a third term? He really doesn't," says Brendan Ahern, CIO of KraneShares, a China-focused exchange-traded fund company based in New York. "There is a lot of emphasis on Xi Forever, but he already has the people in place that can keep pursuing his agenda and economic reforms without him."
China's constitutional changes were passed by the National People's Congress on March 11. Only two delegates voted against the change and three abstained, with 2,964 votes in favor of abolishing term limits. The country has had a two five-year term policy since the 1990s.
Xi Forever is not Castro's Cuba.
There is an unstoppable culture of capitalism and entrepreneurship in China. Private tech companies have driven much of the new wealth in China. Tencent has over 43,000 well paid, well-educated employees with a net profit margin of 27% as of the third quarter last year. Alibaba has around 50,000 employees today and growing globally.
Billionaire tech founders Jack Ma and Robin Li are revered by the government for what they've accomplished. Warren Buffet and hedge fund billionaire Ray Dalio are like rock stars in China, a country full of retail investors who like putting money to work in the stock market as much as they like gambling in Macao and Las Vegas. Mainland equity markets are being institutionalized. The MSCI A Shares inclusion in the massive MSCI Emerging Markets Index is a recognition of that progress. China is still the largest closed-door economy in the world, but it is opening up at its own pace and many U.S. investment banks will reap the benefits of that as China lowers the entry barriers for foreign banks in the mainland.
One of the bigger immediate concerns in China is Washington's push on intellectual property rights. Most of this impacts the privately held telecos like ZTE and Huawei. Huawei has proven to be a serious competitor to Cisco Systems. They are fast developing their own 5G protocols, and so the U.S. considers them a strategic rival in this space.
"I don't see any near-term problems for China with extending term limits," says Andy Rothman, an investment strategist with Matthews Asia in San Francisco. "If he stays on forever it sets a negative precedent because it tells us that the government can change the rules of the game whenever it wants," he says, noting certain legal issues held dear by investors, like property rights. What if those were scrapped someday? Thing is, investors would be hard-pressed to find anyone who thinks something like that is in the cards.
For now, it is all systems go for China. Xi is in his second term, as everyone expected. China is not a Western democracy. It probably never will be, in most of our lifetimes. The next five years of Xi are what matters for investors, and everyone expects Xi to honor his word of slowly opening the economy, within Beijing's limits, and fighting graft. That's where Wang might come in, a man too old to hold office until Sunday's rules change.
"I think Xi is done in five years," says Ahern. "I don't have a crystal ball. But the vision and agenda is already there. It's not necessary for him to stay in power."
https://www.forbes.com/sites/kenrap...er-may-not-be-forever-after-all/#69d32ac7e83d
