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China's 20th Party Congress: Implications for the Chinese Growth Engine

This commentary assesses the impact of China's 20th Party Congress held last month on the direction of China's economic policies and priorities over the next few years. The October 2022 National Party Congress further cemented Xi’s authority with the announcement of his unprecedented third term and the appointment of his close allies as the new members of the Politburo. The government agenda includes plans to grow China into a ‘medium-level developed country’ by 2035, develop self-sufficient supply chains, and increase prowess in key high tech industries, all in the interest of national security and shared prosperity. China's medium-term economic agenda will be difficult to accomplish, especially given the internal and external challenges (such as property market distress, ageing demographics, and heightened tensions with the U.S.) that China currently faces. In DBRS Morningstar's view, given China's elevated national security concerns, the continued shift to increasing self-reliance in high tech sectors is likely to continue. But, when coupled with Xi's consolidation of power, which reduces checks and balances in the government, it increases the risk of policy errors that could exacerbate imbalances in the future and potentially impact China's ratings

Key Highlights

• China's 20th Party Congress lays out the case for greater economic self-reliance and state intervention to enable China reach the mid-level of an advanced economy by 2035

• This could be difficult to achieve given China’s tensions with trading partners, the quality of domestic investment and its on-going challenges to rebalance the economy towards more consumption.

• Greater focus on self-reliance, coupled with China's existing headwinds, is likely to result in slower growth, weigh on government finances and potentially impact China's ratings

“Xi Jinping’s ambitious agenda which focusses on greater self-reliance to grow China into a medium-level developed country by 2035 is challenging in the light of China’s high debt, ageing demographics and declining productivity growth,” says Rohini Malkani, Senior Vice President of the Sovereign Group at DBRS Morningstar. “This coupled with coupled with Xi's consolidation of power, which reduces checks and balances in the government, will likely weigh on government finances and have negative structural implications for the country’s economic prospects and government finances, both of which would adversely affect China's ratings.”